During the 1980 Republican Presidential Primary, George H.W. Bush continuously challenged former California Governor Ronald Reagan on the economy. As the two men vied for the GOP nomination, which Reagan ultimately received, they sparred over economic policy in general, and tax policy in particular. The prevailing opinion prior to the Reagan Presidency was that higher taxes meant higher revenue for the government; therefore, even self-proclaimed fiscal conservatives claimed that higher taxes were necessary to keep the nation’s deficits down and debt from skyrocketing. In retrospect, it seems all-too-familiar that cuts in massive government programs never crossed the minds of political elites in either party; it seems that some things never really change.
James Baker, who would later serve as Treasury Secretary for Reagan and Secretary of State for the first President Bush, served as George H.W. Bush’s campaign manager during that 1980 GOP primary. When then-Governor Reagan touted tax relief as the way to get the economy moving again, and to pay-down the nation’s debt, he was roundly ridiculed by the elites in his own party. George Bush and Jim Baker went so far as to call Reagan’s tax plans “voodoo economics,” claiming that tax relief would never lead to higher Federal revenues. Instead, they argued, it would balloon the deficit, drive-up the national debt and slow economic growth. These beliefs are shared by Barack Obama, who claims that the Clinton Era tax hikes paved the pathway for economic growth in the 1990s.
To his credit, Jim Baker, after serving as Ronald Reagan’s Treasury Secretary, came around on the idea of tax cuts leading to economic growth and lower deficits. In fact, in a documentary on the Reagan Presidency, Baker himself said that, when it came to Reagan’s tax plan, “I was a reformed drunk.” That Jim Baker was convinced by the facts to change his position is a mark of wisdom; that Barack Obama still touts an idea that has been so thoroughly repudiated is pure ideology. Nevertheless, that’s exactly what President Obama has done. During his abysmal debate performance in Denver this past Wednesday evening, Obama touted the 1993 Clinton tax hikes as having paved the way for a robust economy in the 1990s. What he fails to mention, however, is that the roaring ‘90s didn’t start roaring until about 1996. That’s because the tax hikes Clinton rammed through a Democratic Congress killed businesses, slowed the economy and led to the 1994 Republican Revolution.
After losing both the House and the Senate in the 1994 midterm elections,Clinton, ever the populist, decided he better come around on pro-growth policy proposals. In fact, in a speech in 1995, President Clinton told a group of business leaders “probably there are people in this room still mad at me at that budget because you think I raised your taxes too much. It might surprise you to know that I think I raised them too much, too.” Afterwards, Mr. Clinton joined Republicans to pass the 1996 Welfare-to-Work law that fundamentally restructured entitlement programs that were ballooning Federal spending and creating a dependency society. It should be noted here that Barack Obama unilaterally, and illegally, repealed these same critical reforms through the use of an executive order. In addition to Welfare Reform, President Clinton signed a 1997 bill that reduced the nation’s capital gains taxes, which Barack Obama wants to raise, from 28% to 20%. This unleashed the entrepreneurial spirit ofAmerica, and led to phenomenal economic growth and low unemployment through the rest of the decade.
At the same time President Clinton was reversing himself on tax policy, he and his Treasury Secretary worked with then-Speaker Newt Gingrich and Congressional Republicans to restrain the growth of Federal spending. Thus, at a time Federal revenues were increasing by nearly $90 billion per year, due to the capital gains tax reforms and other pro-growth measures, the growth of Federal spending was capped at around $54 billion per year. This prevented further growth in the national debt, and promoted a strong and stable dollar that led to stable prices at a time of rising wages for American families. This was the recipe that led to rapid rises in the median household income, substantial gains in GDP growth and several years of balanced Federal spending.
None of the changes Bill Clinton made in his second term, which led to robust economic growth, are part of Obama’s policy proposals. President Obama only wants to be Bill Clinton from 1993, not the President who saw the light on economic and tax policies. So, when the current occupant of the Oval Office tells us that the Clinton tax rates were responsible for the boom-era of the 1990s, he’s proposing Clinton’s policies from his first year in office, and then championing the result of the policies he adopted after the 1994 midterm elections. In short, he’s trying to attribute a specific result to a wholly separate cause.
While Jim Baker and, apparently, President Bill Clinton were “reformed drunks” on economic policy in general, and tax policy in particular, President Obama still has a hangover and the delusion beliefs that go with one. The American people nostalgic for the boom-era of the late 1990s, and for good reason, but we most know what really caused it if we ever hope to replicate it again. Barack Obama’s ideas certainly can’t revive those days of American promise and prosperity.