It is refreshing to read the economic analysis of Bruce Bartlett, a Republican who has worked for Presidents Reagan and George H.W. Bush as well as for Jack Kemp and Ron Paul. In a recent column (NYT, 8.5.12 “The Clinton Tax Challenge for Republicans”), Bartlett compares the results of George W. Bush’s tax cuts, which failed to promote economic growth, as he promised, and did not pay down the deficit, with Bill Clinton’s tax increases, which cut the deficit completely and also coincided with marked economic growth.
Although President Clinton did not face an economic crisis of the magnitude of the one that Barack Obama found, still Mr. Clinton took office facing a $2.65 trillion federal deficit left by Ronald Reagan. Yet, according to a report by 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.” Most Americans, except for the very youngest, can recall that when President Clinton left office, he handed his successor a federal budget surplus of $236 billion. What happened? That surplus, the nonpartisan C.B.O. reports, “was dissipated by huge tax cuts during the George W. Bush administration.” Compare the national nest egg Mr. Bush inherited to the global economic catastrophe he left his successor in 2008.
The historical record, then, gives voters reason to ignore today’s partisans who claim without shame or evidence that cutting taxes would reduce the deficit and stimulate growth. Why would tax cuts work for Mitt Romney in a much more dire economic situation, when they led to a squandered federal surplus under George W. Bush?
Some commentators have argued that the cut in the capital gains tax was a major factor in President Clinton’s economic turnaround. But that is false. The capital gains tax was not lowered until 1997; by that time the Clinton administration had managed to reduce the deficit for five years in a row.
But there is more. Clinton’s tax increase on the highest earners (from 31 percent to 39.6 percent, which President Obama proposes to restore) was part of a broader program that included federal spending cuts and a general tax hike, not limited to the wealthiest. The increased revenues were used to pay down the deficit even as the nation’s G.D.P. rose.
That history provides ample reason to think that a tax hike might well succeed again. President Obama’s proposal to let the Bush tax cuts on the wealthy expire would be one step in the right direction. Those revenues could be used to pay down the deficit and to stimulate job creation, which is still too sluggish. Gradually, when the economy recovers and stabilizes, more spending cuts and a broader tax hike will also be necessary. That is the winning combination President Clinton implemented.