With our economy teetering and our dysfunctional government at loggerheads about the dreaded "fiscal cliff" we need look back no further than Bill Clintons second term to see what really jump started his economy.
In September 1993 he increased the top marginal tax rate to 39.6%, slapped a 4.3 % per gallon tax increase on gas, expanded the taxable portion of S.S. benefits and increased the top corporate tax rate to 35%.
When Billy "Blue Dress" was inaugurated the economy was already on its way to recovery. He didn’t have a dot-com bubble blow up or the largest terrorist act in history cripple the economy.
The end of the Cold War, thanks to Reagan, and the stabilization of the Middle East thanks to GHW Bush, spurred global economic certainty and the resultant growth. Add to this the incredibly low cost of energy which stayed consistently under $20 a barrel, the Fed keeping interest rates about 2% and the concurrent technology boom that increased productivity and efficiency. Neither Al Gore, nor Clinton was responsible for this growth, the dot-com bubble was the free market on steroids. I remember those days as I day-traded the hell out of the NASDAQ tech sectors and its subsequent “irrational exuberance”.
Despite all these benefits significant growth didn’t start until his second term. Between 1993 and 1997 the economy grew at a respectable but not robust 3.3% annually. We’d love to see that growth today, wouldn’t we? At the same time real wages declined despite claims of great growth.
It wasn’t until 1997 when he slashed the capital gains tax rate from 30% to 20% that the economy truly grew. Business investment soared after the tax cuts. The economy grew at a 4.4% rate and wages grew by 1.7%.
Of course we all know how that irrational exuberance, coupled with skyrocketing home ownership and prices due to his “National Homeownership Strategy” which was the launching pad for both the dot-com and housing bubbles, ended up. Yes, most Americans portfolios grew three to four times what they should have been based on the perfect storm brewing. First the dot-com bubble collapsed and subsequently, 8 years later the housing/liquidity bubble collapsed.
Throw the mythical “Clinton surplus”, which was nothing more than typical Beltway smoke and mirrors by manipulating the Public Debt and Intragovernmental Holdings into the fray, and of course the illusion was complete.
Yes, Billy enjoyed a nice run, but most of the seeds were already planted before he was sworn in. His defining moment came when he dropped the capital gains rate and Americans began tapping into their personal ATM machines, their skyrocketing home values. Capital gains taxes affect not only those mean nasty rich fat cats, they affect all hard working Americans who live frugally, invest and save for their retirement. They affect the millions of retirees who are living off those savings they worked so hard to put away.
Add to this his realization that smaller government was better, assisted by the Republican Congress and their spending cuts, and you or I could have run that economy.
Bush’s mistake was the Iraq and Afghanistan wars. Not because he got us into them but rather that he didn’t have a significant exit strategy. Iraq should have ended as soon as Saddam was found and executed. Afghanistan should have ended when we beat the Taliban or at the latest when we killed Osama Porn Laden. Afghanistan is truly the graveyard of empires. The recent exposure that their heroin exports have increased by more than 20% should tell us what a failure that endeavor truly is.
So, having said all that, Billy Bob Clinton is not the great economic wizard nor is he the first black president. He walked into a very prosperous time, and as Barrack Hussein would say, “He didn’t build that”.