Bruce Bartlett argues that the 1993 Clinton tax increase is a problem for Republicans who claim that tax hikes hurt the economy:
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.
Bartlett cites a lot of conservative economists making predictions about the Clinton tax increase that didn’t pan out. (Rather unaccountably, he didn’t include predictions by one named Bruce Bartlett.) These predictions certainly hurt Republican credibility on the economy during the Clinton years. But even the worst of them were better founded than believing — or pretending to believe — that the Internet boom wouldn’t have happened without the Clinton tax increase and the great recession wouldn’t have happened without the Bush tax cuts.
Neither the Clinton tax increase nor the Bush tax cut were as transformative an economic policy as the Reagan supply-side program of the early 1980s. Bill Clinton imposed higher tax rates on an economy that had grown for nine straight quarters. The Soviet Union had collapsed, oil prices were falling, federal spending would later begin to decline as a percentage of GDP, there was investment in the technology sector.
In other words, other things were going on. Anybody want to bet that raising taxes when the economy is growing by less than 2 percent would have the same results? Secondly, Clinton was on record favoring a capital gains tax cut as far back as 1992 and he signed one into law in 1997. The Obama administration wants to raise capital gains taxes too. The economy grew by just 2.3 percent per annum from 1990 to 1995, but grew at a 4 percent annual rate from 1996 and 2000. The most robust growth occured after some tax cuts had passed.
I’ll readily concede that a 39.6 percent tax rate wasn’t enough to strangle the 1990s Internet boom and that a 35 percent tax rate wasn’t enough to stop a financial meltdown that itself had little to do with tax policy. So what? And what bearing does that have on whether we should raise tax rates right now?