By JLP | July 5, 2012
I picked up a copy of Bruce Bartlett’s The Benefit and The Burden: Tax Reform-Why We Need It and What It Will Take. I’m only into the first chapter (A Brief History of Federal Income Taxation) but am already finding interesting things to point out. Check this out:
Reagan’s tax cut, enacted in 1981, reduced the top rate from 70 to 50 percent and the bottom rate from 14 to 11 percent. Reagan also supported the Tax Reform Act if 1986 (See also the Google landing page for Tax Reform Act of 1986 for other articles), which raised the bottom rate to 15 percent but reduced the top rate to just 28 percent. His successor, George H. W. Bush, agreed to a budget deal in 1990 that raised th top rate to 31 percent. Not only did this action undermine his conservative support in 1992, but it also poisoned the well for future tax reforms. The 1986 act was a deal in which the wealthy gave up their tax preferences in return for a lower top rate, but when the top rate was increased in 1990, the preferences were not restored.
Having broken the deal that underlay the 1985 reform, Bush made it easier for Bill Clinton to go back to the same well and raise the top rate to 39.6 percent in 1993. However, it is seldom noted that Clinton raised the threshold for the top rate from $86,500 to $250,000 ($500,000 for couples), equivalent to $375,000 ($750,000 for couples) today.
Although Republicans predicted an economic apocalypse from the 1993 tax increase, the opposite occurred, and a period of exceptionally rapid growth followed. Also, contrary to Republican predictions, that the new reenue would be spent and not reduce the deficit, speding and th edeficit both fell. federal outlyas from from 22.1 percent of GDP in 1992 to 18.2 percent of GDP in Clinton’s last year in office; revenues rose from 17.5 percent of GDP to 20.6 percent of GDP. The deficit went from 4.7 percent of GDP to a surplus of 2.4 percent of GDP over the same period, a remarkable improvement of 7.1 percent of GDP. the, ironically, a liberal Democrat turned out to be America’s most fiscally conservative president since Calvin Coolidge.
“…a period of exceptionally rapid growth followed.”
Was that “period of exceptionally rapid growth” due to the tax increase? Statements like that make it sound like it was. I have said it many times: the “period of exceptionally rapid growth” we experience during Clinton’s time in office came from two things: Y2K preparedness and the internet boom (stock speculation and online trading). That’s it! Check out these two charts that show the increase in capital gains taxes during the 90s.
It’s a real shame that Clinton gets all this praise heaped upon him for being “fiscally conservative” and people fail to mention that he spent much of his presidency with a Republican Senate and Congress to deal with.
That said, I’m looking forward to reading this book. I think it will be interesting. My first impression so far is that Bartlett is a closet liberal (or perhaps he’s trying so hard to be “fair” that he’s making himself sound liberal). Regardless, this should be an interesting read.