President Bill Clinton has long been heralded as a success story of the Democratic Party, in large part due to the 1990s economic boom.
But a new report by a conservative think tank suggests the economy would have grown even faster without Clinton’s tax increases.
Clinton signed into law a tax hike in 1993 that raised the top marginal tax rate to 39.6 percent, slapped a 4.3 cent per gallon tax increase on gasoline, expanded the taxable portion of Social Security benefit and increased the top corporate income tax rate to 35 percent.
These tax hikes are trumpeted by Democrats as an impetus the decade’s economic boom, or at least cited as evidence that raising taxes doesn’t hurt growth. The Heritage Foundation however contends that these assertions do not hold up to historical facts.
When Clinton was sworn as president, the economy was already well on its way to a recovery. That, combined with a perfect storm of historical events explain the Clinton-era economy, the Heritage Foundation asserts.
“The end of the Cold War brought a powerful dose of growth-enhancing certainty to the global economy,” senior tax policy analyst Curtis Dubay from the Heritage Foundation writes.
Other historical factors include the incredibly low cost of energy which remained consistently under $20 per barrel (today, oil prices are nearly $100 per barrel), the Federal Reserve maintaining low interest rates around 2 percent, and a technology boom that increased productivity and efficiency. (RELATED: Lewinsky’s former rabbi to give benediction after Bill Clinton’s DNC speech)
“With these factors clearing the way, the economy should have displayed spectacular and accelerating growth in the years immediately after Clinton entered the White House, but growth of that magnitude did not materialize until later in the decade,” Dubay writes.
Between the years of 1993 and 1997, the economy grew at 3.3 percent a year. Concurrently, real wages declined, despite the reputation the ’90s has for being a period of great economic growth.
It wasn’t until the tax cuts of 1997 that the full potential of the economy was unleashed. “Business investment skyrocketed after the tax cut,” Dubay says.
The economy began growing at a rate of 4.4 percent and real wages started climbing, growing by 1.7 percent.
Now, President Obama has suggested that the Congress adapt the same tax rates as under Clinton.
“At best, tax increases would slow the already stalled recovery and, at worst, would reverse it altogether,” Dubay suggests.
“Economic growth is slow and declining. The unemployment rate remains stuck over 8 percent, and there appears to be little hope for it to fall in the near future. The President should not be looking for policies that the economy can withstand but for policies that will encourage it to grow,” he concludes.
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