|Which Clinton Economy Does Obama Admire?|
|By Rafael Resendes|
During his acceptance speech, Barrack Obama eloquently voiced the need for America to return to the successful economic policies of the Clinton Presidency when the nation prospered, and people came before Wall Street. But which term was he referring to?
Big Government and Tax the Rich
During his speech, Obama referred to raising the tax rate on the highest earners, increasing the capital gain tax rate, radically revising the health care system, and aggressively pursuing spending on infrastructure projects.
When Clinton entered office, he also proposed raising taxes on the highest earning Americans, expanding spending on the nation’s infrastructure, and redefining the nation’s health care system. There is no doubt that Senator Obama seeks to follow the Clinton’s economic blueprint. Unfortunately, those are a set of collective failed policies that he seems to idealize. Using a benchmark that Senator Obama often holds out to evaluate economic success, President Clinton’s first term was clearly a failure compared to that of President H.W. Bush who preceded him. Unemployment during Clinton’s first four years in office averaged 6.5% compared to 6.3% under the first Bush. The economic track record of Clinton’s first term is particularly distressing, as Clinton entered office on the tail wind of an economic recovery, yet he still fell short of Bush’s economic record. Collectively, Obama’s policies to raise taxes on income and capital gains, combined with massive spending related to expand welfare payments and health care reform has an empirical track record, and it is called failure.
Smaller Government and Lower Capital Gains Taxes
Ironically, Clinton’s economic success came as the Republicans regained control of Congress and set the country in a new economic direction with promises to cut capital gains taxes. However, this period of success and new direction are the very policies that Obama consistently vilifies, and seeks to undo. During this period, Clinton created the economy that led Alan Greenspan to remark how Clinton was the best “‘Republican’ president in a long time.” The defining economic policy driver of Clinton’s second term was aggressively cutting the capital gains tax, which the market began to anticipate in 1996. Though Clinton was politically forced to alter his policies to a new political reality due to the sweeping success of House Republicans and their Contract With America in 1994, Clinton’s reputation will forever reap the benefits.
The Contract With America sought to reduce capital gains taxes by 50 percent. Ultimately, with the final version of the Taxpayer Relief Act of 1997, capital gains tax rates dropped approximately 30% for the highest earning Americans. Also in late 1996, Clinton and Congressional Republicans agreed to welfare reform that further reduced the role of the federal government in everyday life. The result of lower taxes, and a smaller federal government under President Clinton was nothing short of miraculous. During Clinton’s second term, unemployment fell about 30%, and averaged 4.5%.
An alternative evaluation of the Clinton years is revealed through the stock market. While Clinton was clearly enacting the policies he advocated during his first campaign, the stock market returned 5% a year, well below its historic 9% annual rate. However, as it became clear that President Clinton would work with Republicans on the items covered by the Contract With America, the market became much more favorably disposed, returning 20% annually during the last six years of his Presidency. Ironically, Senator Obama’s policies are diametrically opposed to the ideas that produced the Clinton economy he so warmly embraces.
Expanding the Welfare State as an Economic Plan
In a very sneaky manner, Senator Obama has seemingly embraced Republican rhetoric, by claiming that his economic plan is built around reducing taxes for 95% of Americans. Sadly, Senator Obama seemed to only learn fuzzy math from the education system he refuses to fundamentally reform. After all, how can 95% of the population receive income tax reductions, when approximately only 41%, or 100 million individuals, of the taxable population pay no federal income taxes? This makes no sense. While it is of course physically and/or logically impossible to cut income taxes for those that do not pay them, Senator Obama works around this by providing refundable tax credits of $500 to individuals and $1000 to families that pay no taxes. This in essence creates $750 Billion a year of new welfare spending. Again the irony is President Clinton worked very hard to reduce and eliminate welfare, while Senator Obama makes it a fringe benefit for voting for him.
What is particularly disingenuous about this plan, is that unlike the logic of past tax cuts, which provided incentives for individual to work and earn more, and thus consistently resulted in higher revenue for the Treasury, this approach actually provides individuals incentives to work less. Obama currently couches his vision of expanding welfare under a fairness argument. He argues that only those earning more than $250,000 year will incur higher taxes.
Unfortunately the number of earners making $250,000 or more a year is very small relative to the number of people they must support under this plan. In 2005, out of 104 million filed tax returns, approximately 3 million had incomes exceeding $250,000. In other words, Obama looks for each person in this income bracket to pay an annual welfare payment of $500 a year to 30 individuals, for an average burden of $15,000 per tax paying citizen. While Obama has currently stated this expense should only be the burden of those earning more than $250,00 a year, the sad truth is that it will be too easy and tempting to reach to lower income levels to and promise more and more benefits to those not paying taxes to keep getting their votes. History has consistently shown one thing, when the government begins giving money away to get votes, it tends to have very little restraint on its appetite to give even more away later for more votes. This eventually means tapping more and more citizens to feed the machine.