June 7, 2012
A Balanced Approach: Tax like Bush, Spend like ClintonBy Randall Hoven
OK, Democrats, you've convinced me. The last 8, 10, or 12 years (or whatever amount of time it takes to cover Bush's two terms and their aftermath) were just terrible, and we mustn't repeat or imitate such folly. Perhaps the example to follow would be that of another Democrat. Say, a Democrat president who followed a President Bush. A Democrat who entered office shortly after a financial crisis and a recession.
Bill Clinton succeeded George H.W. Bush. He was elected in 1992, or just after the 1990-91 recession ended and while the Savings & Loan bailout (Little TARP) was still in progress.
So what did President Clinton do? He cut spending (as a fraction of GDP). Yes, he did that even before Republicans took over Congress. And he took it below its 40-year average by his fourth year in office.
But look what Obama did. He did not "waste" a crisis like Clinton did. He took every ounce of George W. Bush's 2009 spending, added a $410-billion Omnibus and an $831-B stimulus, asked for the second helping of the $700-B TARP, and never looked back. The recession ended in June 2009, but the spending never stopped; it is still above the pre-2009 peacetime high.
In round numbers, we are spending about 4% of GDP, or about $600 B, every year above our pre-2009 post-war average. The new normal is a "stimulus" every single year.
George W. Bush added $5 trillion to the debt in eight years? Obama did that in three years. Bush gave us Medicare Part D? Obama gave us ObamaCare. Bush signed Sarbanes-Oxley? Obama signed Dodd-Frank.
For a guy who repeatedly says he won't repeat the mistakes of his predecessor, Obama repeats them on steroids: more TARP, more government health programs, more financial regulation, more spending. And for a party that constantly gripes about "the Bush tax cuts," Obama extended them, but only on the condition that an extra $314 B in tax cuts and credits be included.
Contrast that record to Clinton's. Yes, Clinton and the Democrat Congress raised taxes in 1993. The top rate for individuals went from 35% to 39.6%, affecting the top 1.2% of incomes. But he later cut tax rates on capital gains from 28% to 20%. He championed and signed free trade agreements. He signed the "end to welfare" (actually, the end of Aid to Families with Dependent Children). He signed the Freedom to Farm Act, which would have eliminated farm subsidies over time (until Tom Daschle and George W. Bush put an end to that). He partially repealed Glass-Steagall regulations and still supports that decision.
And he cut spending. By the end of his second term, federal spending was at its lowest level since 1966 as a fraction of GDP.
And how did all that work out for these two presidents? Let's go to the tape: real GDP and jobs.
Source: St. Louis Federal Reserve/FRED (GDPC96 Series)
Source: St. Louis Federal Reserve/FRED (PAYEMS Series)
Even if you only include job growth since it bottomed out in February 2010, the rate of job growth under Obama is half that of Clinton's in a similar period: 1.3% annual growth vs. 2.6%. Similarly for real GDP: since it bottomed out in 2009, it's grown at an annual rate of 2.4% vs. Clinton's 3.2% for a similar period. And real GDP growth is slowing down: in the last year and in the last quarter, real GDP grew slower than 2% annually.
For those who say "austerity" does not work, look at the U.S. after Ronald Reagan cut tax rates. In 1983 the federal government spent 23.5% of GDP. By 2000 it was spending only 18.2%. That is like a 235-pound man going on a diet and losing 53 pounds. It was significant. It was real. And it lasted.
And in those 18 years (Dec. 1982 to Dec. 2000), a net 44 million jobs were created in the U.S. -- a rate of over 2.4 million new jobs every year, for 18 years.
And what about the years since we went off the diet and gained back every bit of those 53 pounds and also gained another five or ten? We've created barely half a million jobs total over that whole time, more than 11 years. More Americans had jobs in April 2005 than in May 2012.
The Keynesians who advise Obama are like people who heard that long-distance runners load up on carbohydrates by having a big pasta dinner the night before a marathon. But instead of ever actually running to get in shape, they simply keep eating pasta as their method of "training." A flawed premise becomes a way of life -- indeed, a religion.
Clinton left federal spending at 18.2% of GDP in 2000 and 2001. In 2007, four years after Bush's second round of tax cuts, federal revenues were 18.5% of GDP. Do you know what the Congressional Budget Office expects federal revenues to be if we keep the Bush tax rates? About 19% of GDP. Get it? If we would tax like Bush and spend like Clinton, we would have a balanced budget!
There you go, Democrats, independents, and moderates: a balanced, bipartisan approach. Tax like Bush, spend like Clinton. Maybe Mitt Romney could try it.
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