
Taxes, economic growth and budget deficits
Another great New York Times Economix blog from Bruce Bartlett. Highly recommended! Bartlett, as you will recall, is one of the original supply side tax cutters. He served as senior staff to, among others, Jack Kemp, Ronald Reagan and Ron Paul. (By the way, his new book “The Benefit and The Burden: Tax Reform-Why We Need It and What It Will Take” is a terrific primer on federal taxes.)
Bartlett writing about a new report from the Congressional Budget Office makes clear that the Bush era tax cuts (kept in place by the Obama Administration) have been associated with economic decline and are a big reason for the huge federal budget deficit. That, in fact, it is the Clinton Administration with its tax increase that gave us not only economic growth and low unemployment but also federal budget surpluses. Turns out the story we are told over and over again about how higher taxes lead to economic decline and have nothing to do with government deficits is nonsense.
As Bartlett writes the key to the Clinton era success was the combination of a tax increase and control of federal spending. He writes:
The … surplus was primarily the result of two factors. First was a big tax increase in 1993 that every Republican in Congress voted against, saying that it would tank the economy. This belief was wrong. The economy boomed in 1994, growing 4.1 percent that year and strongly throughout the Clinton administration. The second major contributor to budget surpluses that emerged in 1998 was tough budget controls that were part of the 1990 and 1993 budget deals. The main one was a requirement that spending could not be increased or taxes cut unless offset by spending cuts or tax increases. This was known as Paygo, for pay as you go.
He contrasts that to what happened after the Bush tax cuts were enacted:
How we have let the story that higher taxes destroy the economy and have nothing to do with budget deficits become conventional wisdom is beyond me. The Nineties were arguably the best economy in American history, certainly the best decade since World War II. And we not only had a great economy – one with labor shortages – but we also had a federal budget that was balanced long term.