The Clinton Tax Challenge for Republicans

Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of “The Benefit and the Burden: Tax Reform – Why We Need It and What It Will Take.”

Republicans are adamant that taxes on the ultra-wealthy must not rise to the level they were at during the Clinton administration, as President Obama favors, lest economic devastation result. But they have a problem – the 1990s were the most prosperous era in recent history. This requires Republicans to try to rewrite the economic history of that decade.

Perspectives from expert contributors.

In early 1993, Bill Clinton asked Congress to raise the top statutory tax rate to 39.6 percent from 31 percent, along with other tax increases. Republicans and their allies universally predicted that nothing good would come of it. They even said that it would have no impact on the deficit.

Ronald Reagan himself was enlisted to make the case the day after President Clinton unveiled his program. Writing in The New York Times, the former president said, “Taxes have never succeeded in promoting economic growth. More often than not, they have led to economic downturns.”

Of course, Reagan himself raised taxes 11 times between 1982 and 1988, increasing taxes by $133 billion a year, or 2.6 percent of the gross domestic product, by his last year in office. Presumably he supported these measures because he thought they would raise growth; otherwise he could have vetoed them.

Speaking before the Heritage Foundation’s board on April 16, 1993, former Representative Jack Kemp, Republican of New York, predicted budgetary failure from the Clinton plan. “Will raising taxes reduce the deficit?’ he asked. “No, it will weaken our economy and increase the deficit.”

Conservative economists were often quite specific about exactly what the negative impact of the president’s plan would be. On May 8, The New York Times interviewed several. John Mueller, a Wall Street consultant, said inflation would rise to “at least 5 percent within the next two or three years.”

In fact, the inflation rate did not rise at all until 1996 and then went up to 3.3 percent before falling to 1.7 percent in 1997 and 1.6 percent in 1998.

In the same article, the economist John Rutledge also saw higher inflation from the Clinton plan and said it would raise the deficit. “Look for a higher, not lower, deficit if the Clinton package passes Congress,” he said.

According to the Congressional Budget Office, the federal budget deficit fell every year of the Clinton administration, from $290 billion in 1992 to $255 billion in 1993, $203 billion in 1994, $164 billion in 1995, $107 billion in 1996, and $22 billion in 1997. In 1998, there was a budget surplus of $69 billion, which rose to $126 billion in 1999 and $236 billion in 2000 before it was dissipated by huge tax cuts during the George W. Bush administration.

Among the most detailed economic analyses of the negative impact of the Clinton plan was one made by the economist Gary Robbins in August 1993. He predicted that G.D.P. would be $244.4 billion lower in 1998 compared with the C.B.O. baseline. He did not provide the baseline figure, so I looked it up. In its January 1993 projection, the budget office put G.D.P. at $7,953 billion in 1998. Subtracting Mr. Robbins’s estimate of the economic cost of the Clinton plan yields an estimated G.D.P. of $7,709 billion in 1998.

If one goes to the government Web site where the G.D.P. figures appear and looks up the one for 1998, one finds that it was $8,793 billion. Thus Mr. Robbins was off by more than $1 trillion. G.D.P. was 14 percent higher than he predicted.

Nevertheless, Republicans continue to rely upon Mr. Robbins’s estimates of the effects of the economic impact of tax cuts, which always show hugely positive effects from tax cuts. Recently, he was the author of the 9-9-9 tax plan put forward by Herman Cain as he sought the Republican presidential nomination last year.

In my posts on May 22, 2012, and Nov. 22, 2011, I presented other data on the positive economic consequences of President Clinton’s high-tax policies compared with the poor economic consequences of President Bush’s low-tax policies. Nevertheless, it is conservative dogma that we need more policies like President Bush’s and must not, under any circumstances, replicate President Clinton’s policies.

However, there are still a few people around old enough to remember the 1990s and 2000s. Even without looking up government statistics, they know that the 1990s were a time when the economy boomed, while the 2000s were a period of economic stagnation.

This has created a problem for Republicans, leading to economic revisionism.

Last year, the Republican anti-tax activist Grover Norquist asserted that the boom of the 1990s resulted from the election of a Republican Congress in 1994, because business people and financial markets somehow knew this would lead to a cut in the capital gains tax. The capital gains tax was in fact cut in 1997. But the boom and the improvement in the budget deficit long predated that event.

In July, Charles Kadlec, a Forbes columnist and author of the book “Dow 100,000” (New York Institute of Finance, 1999), insisted that it is a “myth” that the economy prospered under President Clinton’s policies. He offers no actual evidence for this assertion except to say that the economy would have done even better under Reagan-type policies. Like Mr. Norquist, he attributes anything good that happened in the 1990s to the Republican Congress, which did not take office until 1995.

Last week, the investor Edward Conard, author of a recent book glorifying the ultra-wealthy, addressed the Republicans’ Clinton problem in a commentary in The Wall Street Journal. He said that the boom of the 1990s was the result of Internet-driven growth and that President Clinton was just lucky that it happened on his watch.

Maybe so, but Mr. Conard left unexplained why the budget went from a large deficit to a large surplus simply because of the Internet or why the big tax cuts on the rich he favors failed to raise growth one iota in the 2000s.

I would not argue that tax increases are per se stimulative. It all depends on circumstances. But it is clear from the experience of the 1990s that they can play a very big role in reducing the budget deficit and are not necessarily a drag on growth. And the obvious experience of the 2000s is that tax cuts increase the deficit and don’t necessarily do anything for growth. Those arguing otherwise need to make a much better case than they have so far.

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Murdoch Chides Romney on Campaign and Obama Challenge

10:19 a.m. | Updated Rupert Murdoch is offering some unsolicited advice to the Romney campaign. Saying he met the candidate last week, Mr. Murdoch, the head of the News Corporation, suggested Sunday on Twitter that Mr. Romney may have to shed some of his current staff and replace them in order to go up against “Tough O Chicago Pros” — no doubt a reference to President Obama‘s campaign team, which is based in that city.

Met Romney last week.Tough O Chicago pros will be hard to beat unless he drops old friends from team and hires some real pros. Doubtful.

— Rupert Murdoch(@rupertmurdoch) July 1, 2012

Mr. Murdoch, of course, controls Fox News, a favored spot for influential Republicans including Mr. Romney himself. And it is not the first time the media baron has chimed in on Twitter with some musings on the presidential campaign and the candidates. He once chided Mr. Obama on the antipiracy front, for instance, and predicted Rick Santorum‘s strong showing in Iowa. On his Sunday Twitter burst, Mr. Murdoch also gave a more neutral take on the president, saying the election would be “referendum on Obama, all else pretty minor.”

US election is referendum on Obama, all else pretty minor.

— Rupert Murdoch(@rupertmurdoch) July 1, 2012

During the previous presidential election in 2008 Mr. Murdoch remained elusive on which candidate he liked, though he sent some signals that he may have preferred Mr. Obama. Speaking at the annual All Things Digital Conference in 2008 sponsored by The Wall Street Journal, a subsidiary of News Corporation which is controlled by Mr. Murdoch, he said of Mr. Obama, “He is a rock star,” adding, “he’ll probably win it.”

Mr. Murdoch then went on to say that Republican candidate at the time, John McCain, was a “patriot and a decent guy, but he’s unpredictable and he doesn’t know much about the economy, adding, “I think he has a lot of problems.”

Though originally giving strong praise for Mr. Santorum when he was still running for the Republican Party’s nomination, Mr. Murdoch has since offered mainly lukewarm words toward Mitt Romney. Mr. Murdoch recently took to Twitter to criticize Mr. Romney’ immigration policy. His message said: “When is Romney going to look like a challenger? Seems to play everything safe, make no news except burn off Hispanics.” When asked by one of his Twitter followers what he thought of the Mormon religion, Mr. Murdoch called it “a mystery to me, but Mormons certainly not evil.”

On Monday, Mr. Murdoch was back on Twitter again, this time saying he had heard from the Romney campaign and wants Mr. Romney to win to “save us from socialism.”

Romney people upset at me!Of course I want him to win, save us from socialism, etc but should listen to good advice and get stuck in!

— Rupert Murdoch(@rupertmurdoch) July 2, 2012

Taylor Arluck contributed reporting.

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Lugar Loses Primary Challenge in Indiana

Mr. Lugar, a six-term senator from Indiana who had won most of his recent elections with more than 60 percent of the vote, only received 39.4 percent of the vote on Tuesday, losing a hard-fought Republican primary to Richard E. Mourdock, the state treasurer. Mr. Mourdock’s campaign was fueled by Tea Party groups and national conservative organizations that deemed Mr. Lugar too willing to compromise and poured millions of dollars into the campaign to defeat him.

Mr. Lugar, 80, had not faced a challenge from within his own party since his first election to the Senate in 1976, and his defeat seemed to serve as a caution to moderates on both sides of the aisle.

In February, Senator Olympia J. Snowe of Maine, a moderate Republican, decided not to run for re-election, citing polarization in Washington. Senators Kent Conrad of North Dakota, a Democratic fiscal centrist, and Jim Webb of Virginia, a moderate Democrat, are retiring. Two other moderate Democrats, Senators Claire McCaskill of Missouri and Jon Tester of Montana, face tough re-election races.

Tea Party organizers and conservative leaders held the Indiana outcome as evidence of a broader national demand for Republicans with unshakable stances on fiscal reform and conservative values, as well as proof of the continuing power of the Tea Party movement.

“Richard Mourdock’s victory truly sends a message to the liberals in the Republican Party,“ said Chris Chocola, president of the Club for Growth. “Voters are rejecting the policies that led to record debt and diminished economic freedom.”

For a number of Mr. Lugar’s supporters, the results were a sorry arc — not just for a man who has served for 35 years in Washington and as mayor of Indianapolis before that, but for a larger notion of trying to work across party lines in Washington.

Prominent Democrats, including President Obama, issued statements of appreciation on Tuesday night for Mr. Lugar, the ranking Republican on the Senate Foreign Relations Committee, and for his work, particularly on the nation’s foreign affairs.

“While Dick and I didn’t always agree on everything,” Mr. Obama said, “I found during my time in the Senate that he was often willing to reach across the aisle and get things done.”

Still, some Democrats, eager to hold onto the Senate, also seemed buoyed by the results here. With Mr. Lugar’s defeat, they see the glimmer of an opportunity to claim a Senate seat that the party had considered out of reach as long as he was in the running. The Democratic candidate, Representative Joe Donnelly, is thought to have a better chance with independents and moderate Republicans in November against Mr. Mourdock.

Almost immediately, Democrats began emphasizing Mr. Mourdock’s conservative views. “Hoosiers deserve real leadership that will reach across the aisle in Richard Lugar’s successor, not Richard Mourdock’s Tea Party extremism,” said Dan Parker, the chairman of the Indiana Democratic Party.

For months, the campaign here had been intense, expensive and, by Indiana standards, mean. National groups including the Club for Growth, the National Rifle Association and FreedomWorks, which helped build the Tea Party movement, had viewed Mr. Lugar as a ripe and overdue target, and they poured millions of dollars into the state.

Mr. Lugar — who may be best known for his 1990s effort, along with Sam Nunn, a Democratic senator from Georgia, for a disarmament program in the former Soviet Union — was criticized throughout the campaign for what critics described as his tendency to cooperate with Democrats. He shifted to the right in 2011, after the threat to his re-election became clear.

Mr. Mourdock, meanwhile, has said that bipartisanship has led the nation to the brink of bankruptcy, and that the nation’s current circumstances call for a time of confrontation, not collegiality.

After his victory, he acknowledged his opponent. “I know what it’s like to lose — it’s not fun,” Mr. Mourdock told The Associated Press. “And especially after he’s given that 36 years in the Senate. I know he has to feel terrible tonight, and I truly feel badly for him.”

Carl Hulse and Jennifer Steinhauer contributed reporting from Washington.

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Studies challenge wisdom of GOP candidates' plans (AP)

WASHINGTON – Key proposals from the Republican presidential candidates might make for good campaign fodder. But independent analyses raise serious questions about those plans and their ability to cure the nation's ills in two vital areas, the economy and housing.

Consider proposed cuts in taxes and regulation, which nearly every GOP candidate is pushing in the name of creating jobs. The initiatives seem to ignore surveys in which employers cite far bigger impediments to increased hiring, chiefly slack consumer demand.

"Republicans favor tax cuts for the wealthy and corporations, but these had no stimulative effect during the George W. Bush administration, and there is no reason to believe that more of them will have any today," writes Bruce Bartlett. He's an economist who worked for Republican congressmen and in the administrations of Presidents Ronald Reagan and George H.W. Bush.

As for the idea that cutting regulations will lead to significant job growth, Bartlett said in an interview, "It's just nonsense. It's just made up."

Government and industry studies support his view.

The Bureau of Labor Statistics, which tracks companies' reasons for large layoffs, found that 1,119 layoffs were attributed to government regulations in the first half of this year, while 144,746 were attributed to poor "business demand."

Mainstream economic theory says governments can spur demand, at least somewhat, through stimulus spending. The Republican candidates, however, have labeled President Barack Obama's 2009 stimulus efforts a failure. Instead, most are calling for tax cuts that would primarily benefit high-income people, who are seen as the likeliest job creators.

"I don't care about that," Texas Gov. Rick Perry told The New York Times and CNBC, referring to tax breaks for the rich. "What I care about is them having the dollars to invest in their companies."

Many existing businesses, however, have plenty of unspent cash. The 500 companies that comprise the S&P index have about $800 billion in cash and cash equivalents, the most ever, according to the research firm Birinyi Associates.

The rating firm Moody's says the roughly 1,600 companies it monitors had $1.2 trillion in cash at the end of 2010. That's 11 percent more than a year earlier.

Small businesses rate "poor sales" as their biggest problem, with government regulations ranking second, according to a survey by the National Federation of Independent Businesses. Of the small businesses saying this is not a good time to expand, half cited the poor economy as the chief reason. Thirteen percent named the "political climate."

More small businesses complained about regulation during the administrations of Bill Clinton and George H.W. Bush, according to an analysis of the federation's data by the liberal Economic Policy Institute.

Such findings notwithstanding, further cuts in taxes and regulations remain popular with GOP voters. A recent Associated Press-GfK poll found that most Democrats and about half of independents think "reducing environmental and other regulations on business" would do little or nothing to create jobs. But only one-third of Republicans felt that way.

The GOP's presidential hopefuls are shaping their economic agendas along those lines.

Former Massachusetts Gov. Mitt Romney says his 59-point plan "seeks to reduce taxes, spending, regulation and government programs."

Businessman Herman Cain would significantly cut taxes for the wealthy with his 9 percent flat tax plan. Rep. Michele Bachmann of Minnesota said in a recent debate, "It's the regulatory burden that costs us $1.8 trillion every year. ... It's jobs that are lost."

The candidates have said little about another national problem: depressed home prices, as well as the high numbers of foreclosures and borrowers who owe more than their houses are worth.

After the Oct. 18 GOP debate in Las Vegas, a center of foreclosure activity, editors of the AOL Real Estate site wrote, "We didn't hear any meaningful solutions to the housing crisis. That's no surprise, considering that housing has so far been a ghost issue in the campaign."

To the degree the candidates addressed housing, they mainly took a hands-off approach. "We need to get government out of the way," Cain said. "It starts with making sure that we can boost this economy and then reform Dodd-Frank," which is a law that regulates Wall Street transactions.

Bachmann, in an answer that mentioned "moms" six times, said foreclosures fall most heavily on women who are "losing their nest for their children and for their family." She said Obama "has failed you on this issue of housing and foreclosures. I will not fail you on this issue." Bachmann offered no specific remedies.

Romney told editors of the Las Vegas Review-Journal: "Don't try and stop the foreclosure process. Let it run its course and hit the bottom. Allow investors to buy homes, put renters in them, fix the homes up and let it turn around and come back up."

Perry spokesman Mark Miner said the Texas governor's "immediate remedy for housing is to get America working again. ... Creating jobs will address the housing concerns that are impacting communities throughout America."

Bartlett, whose books on tax policy include "The Benefit and the Burden," recently wrote in the New York Times: "People are increasingly concerned about unemployment, but Republicans have nothing to offer them."

The candidates and their supporters dispute this, of course. A series of scheduled debates may give them chances to explain why their proposals would hit the right targets.

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