Those claiming the coming tax increases won’t hurt the economy and economic bulls who believe that the divided government that will come after the midterm elections often use the ‘Clinton Defense.’ The reasoning is simple: we had this during the Clinton years, so it has to be good! This overly simplistic reasoning (ever hear of correlation versus causation) should be instantaneously understood as well..overly simplistic to anyone with a brain. But alas, our great beings in power in Congress really believe they have discovered something truly genius here (at least with the tax increases).
Let’s break down the Clinton Defense bit by bit and debunk several common myths:
“The Republicans took a budget surplus and turned it into a budget deficit”
While it’s true that Bush was a miserably poor president who was fiscally reckless by getting us into an unnecessary war, creating an entirely new bureaucracy of ‘Homeland Defense,’ and creating a Medicare entitlement that will help bankrupt the country, claiming that Clinton got us a budget surplus is misleading. The reason we had a temporary surplus was because of a stock market bubble that ushered in an enormous amount of capital gains tax revenue. Just look at the CBO statistics. Notice how capital gains revenue jumped by about $50 billion during the late 90′s compared to the mid 90′s? That will certainly help fill a budget deficit, especially when factoring in the ‘wealth effect’ caused by capital gains leading to a stronger economy, more spending, and other taxes as a result.
Furthermore, Obama’s deficits makes Bush look like frugal. Jacking up the deficit a trillion dollars over your predecessor and then claiming it is all Bush’s fault truly takes some cajones. Two wrongs also don’t make a right. I could go on…but I think you get the point.
Tax rates were higher during Clinton, but we had a stronger economy
This argument is so shallow it seems it would come from a 13 year-old, except most Congressmen still believe this argument. During Clinton, we were in an economic boom, so any tax increase would simply lower the amount of economic growth (which was already high). Growing at 3% instead of 5% is still growth and still ‘good’ to many people, though the economy could have still been better. However, going into -2% GDP growth instead of flatlining means going from bad to worse and 10% unemployment to 12% unemployment.
Furthermore, during Clinton, we had this fantastic invention that just came online called the Internet….unless some major technological breakthrough happens, I doubt we can bank on major technological advances and a stock market bubble to power through the economy.
Clinton also did the following which are anathema to the current Congress:
1. He expanded free trade (NAFTA) thereby reducing the costs of goods and services for the average American. This helped create the strong dollar.
2. He lowered capital gains taxes in his second term.
3. He
4. He did not attack businesses with increased regulation and burden them with a new health care mandate.
Furthermore, if you look at most of history, a tax increase generally spells disaster, especially during hard times. The most apt comparison to today are the tax increases by FDR in 1937 that led to the double dip during the Great Depression, and Hoover’s tax increases in 1932 that helped tank the already floundering economy.
Divided government is good for the economy since those idiots in Congress can’t get anything done. Little was done during the Clinton years and little will be done in 2011-2012
In general, I agree with this statement by economic bulls. However, the problem is that we do not face a discretionary spending crisis. Rather, it is the mandatory entitlements set up by Bush, Obama, and decades of fiscal insanity. As boomers approach retirement, the demands on Medicare and Social Security will balloon and will exacerbate our structural deficit.
Divided government means there will be no solution for this, and we will become closer to the fiscal endpoint like Greece and other fiscally irresponsible countries. Except, unlike Greece, we are too big to bailout…