The 1993 Clinton Tax Increase Did Not Lead to the Budget Surpluses of the Late 1990s
by Dan MitchellProponents of higher taxes are fond of claiming that Bill Clinton’s 1993 tax increase was a big success because of budget surpluses that began in 1998.
That’s certainly a plausible hypothesis, and I’m already on record arguing that Clinton’s economic record was much better than Bush’s performance.
But this specific assertion it is not supported by the data. In February of 1995, 18 months after the tax increase was signed into law, President Clinton’s Office of Management and Budget issued projections of deficits for the next five years if existing policy was maintained (a “baseline” forecast). As the chart illustrates (click to enlarge), OMB estimated that future deficits would be about $200 billion and would slightly increase over the five-year period.
In other words, even the Clinton Administration, which presumably had a big incentive to claim that the tax increase would be successful, admitted 18 months after the law was approved that there was no expectation of a budget surplus. For what it’s worth, the Congressional Budget Office forecast, issued about the same time, showed very similar numbers.
Since the Clinton Administration’s own numbers reveal that the 1993 tax increase was a failure, we have to find a different reason to explain why the budget shifted to surplus in the late 1990s.
Fortunately, there’s no need for an exhaustive investigation. The Historical Tables on OMB’s website reveal that good budget numbers were the result of genuine fiscal restraint. Total government spending increased by an average of just 2.9 percent over a four-year period in the mid-1990s. This is the reason why projections of $200 billion-plus deficits turned into the reality of big budget surpluses.
Republicans say the credit belongs to the GOP Congress that took charge in early 1995. Democrats say it was because of Bill Clinton. But all that really matters is that the burden of federal spending grew very slowly. Not only was there spending restraint, but Congress and the White House agreed on a fairly substantial tax cut in 1997.
To sum things up, it turns out that spending restraint and lower taxes are a recipe for good fiscal policy. This second chart (click to enlarge) modifies the first chart, showing actual deficits under this small-government approach compared to the OMB and CBO forecasts of what would have happened under Clinton’s tax-and-spend baseline.
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36 Comments
There was NO SURPLUS. The debt kept climbing.
Until the Government is forced to only fund those items that are contained in the Constitution any talk of the budget is worthless!
It's Medicare. It's Medicaid. It's Social Security. The RINOs are dancin' around them, talking about "reform". It's BS on their part, we can't sustain such massive largesse, even for current recipients — and shouldn't want to in the first place. The political class know many won't hear of it. Fidelity to the Constitution, is lost in thoughts of the next election. Well, the elections are over, "we won". 'We The People' won. We control the House, and thereby, what gets spent. By not raising the debt ceiling, we can cut these unfunded liabilities off, and STOP borrowing. The TEA Party needs to get all-up in Boehner's face! All those candidates who got sent to D.C. on claims of their supposed "radicalism", need to back them up, and exercise "the nuclear option". Breitbart's people are out of their minds writing articles about "5%" spending cuts. Reducing our annual budget deficit to "only" $1,425,000,000,000. Yay!!I don't think so. The Chicoms are quickly discovering that we're debt-junkies, with no earthly means of repaying them and are already in the process of cutting us off. What then? Hyperinflation, default, and total collapse. Unless we FORCE the other side to deal with long term deficits, by shutting the government down. We can put them in the position of having to publicly choose between maintaining essential government functions, and propping up their socialist welfare-state.
Republicans and Democrats both give US pandering lip-service.
Remember that little joke from last year called U-Cut… that was an enormous success, wasn't it? (sarc)
Get them ALL OUT,
or our CONSTITUTIONAL REPUBLIC may have NO chance of survival…
FIGHT on PATRIOTS!!!
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King dollar did the work! Reagan made that dollar possible. Why is this so f-ing complicated for liberals to comprehend?
He also implemented a luxury tax (later repealed) on boats that killed many jobs in the shipbuilding industry.
The only way to lower deficits is to spend less than you take in. It's so simple only an elite education recipient ( victim? ) could fail to understand.
[Nothing in this post is meant to rely any intention, or even remotely possible notion of violence, I’m a lover not a fighter:) - Just venting, I’ve got lot’s of venting to do . . . . ]
October 29, 2010
Dear John “D student” Kerry and President Obama,
I’ve about had it with your ilk who claim to know how best to run the affairs of The United States of America. Recently, you complained how I am apart of a group of “know nothings.” For one thing, during the “Obama Induced Depression” I’m managing to pay my mortgage, my health insurance, car payment, and my food bills without one dime of welfare – so if I’m a “know nothing” you are a moron.
Let’s evaluate my claim of you being a complete moron. Exhibit A. You chose a running mate of such low character that he would eventually cheat on his cancer stricken wife. Now, I’ll spot any man one screw up; but to claim that he bumped into a videographer 50 times, with such force, and precision, as to impregnate her, well, we call that textbook fornicating, and when one is married, we call that adultery. Exhibit B. Mr. Kerry you believe in global warming, climate change, or anthropomorphic global cooling or warming; none of this can be true, none of it. Prior to man’s arrival and invention of the internal combustion engine, or discovery of anything remotely related to the burning of fossil fuels; the Earth cooled, and warmed, for millions of years. Millions. Thus, you and Obama, are trying to order me, and my fellow citizens to live our lives according to a lie.
Screw you, and the horse, or sailboat, that you rode in on. As for the sailboat maybe next time you should pay your taxes.
Therefore, I’m actually attached to fairly intelligent, and a very hardworking group of people who want the best for their children. They are motivated, and full of something called common sense. On a personal note; I could probably drink a little less, but with people like you, and President Schmucko up there, a few Sam Adam’s and Scotch & Soda’s seem like a wise idea. Just so long as I don’t go joy riding near a bridge in Chappaquiddick looking for broads to drowned.
On November 6, 2012 this “know nothing,” who has clearly had his full of numb nuts like you is going to give deliver to all of you liberals the “what for” along with tens of millions of his friends he has never met, but loves all the same. I want this country on firm financial ground, or headed there at warp speed. I want our borders defended and secured. I want America to get back in the business of manufacturing Americans out of immigrants, and to abandon this multicultural crap. I want to define and kill America’s enemies, and get the hell out of the middle east for once and for all. And, Last but not least I want my BR-40 100 Watt light bulb back!
Drop Dead, and if you can’t do us that courtesy, at least be quiet while we try to fix the mess you liberals have caused. Having you give a guy like me advice is like asking Barney Frank to perform a proctological exam.
Joe Doakes
•The economy was out of recession in March of 1991. This is em, er…before Clinton announced in October of that year that he was running for president, and almost two and a half years before President Clinton signed his tax law.
•In the twelve months leading up to the tax signing (August 1992-July 1993), the economy gained 2,023,000 jobs, which is 168,000 jobs per month. To put things into perspective: in the four years during which Democrats recently controlled Congress, we did not have a twelve-month period where the economy gained 100,000 jobs on a monthly average, let alone 168,000 to meet an economy of fifteen years earlier.
•In the six months (February-July 1993) leading up to the tax signing, the monthly average job gain was already 208,000, which shows that the economy was growing stronger by the month, well before the bill was signed.
•The unemployment rate peaked July 1992 — more than six months before Clinton stepped into the Oval Office, and more than twelve months before Congress voted on the tax bill. In fact, the rate lost almost a full percentage point in the twelve months leading up to the tax signing
http://www.americanthinker.com/2010/12/the_clinto...
I agree. Look how they are fudging the inflation and unemployment numbers now. It's all a scam and has been for a long time.
common sense stuff if your conservative…when will the D's and R's figure it out, neva
The budget 'surplus' was manufactured by changing the accounting mechanics of Social Security. Originally, SS taxes were considered collections in advance to be held in trust until disbursed. The disbursements were to be offsets against the asset account 'Social Security Trust' (remember Al Gore's 'lock-box' cliche?).
Social Security disbursements are now recorded as an operating expense and the 'Trust' no longer exists. So SS taxes collected were added to overall tax revenues instead of being set aside to meet future obligations. SS has become the PONZI scheme we know today because of this gimmiickery.
Savannah Guthrie's Soak-the-Rich Obsession: Higher Taxes Only Means of Lowering Deficits
http://www.mrc.org/bmi/articles/2010/Savannah_Gut...
"The time is near at hand which must determine whether Americans are to be free men or slaves."
George Washington
PLEASE! don't confuse liberals with facts…. it messes up their feeeeeeeeeelings!
U-Cut …like PAYGO …not. You are more optimistic than I at this point in time, Corn.
I will keep on fighting til the end …the past 8+ years have been saddest days in my time as regards the Government (all levels) and the survival of this Great Country.
Been meaning to tell ya, I LOVE your new avi…
My optimism ebbs and flows, as does everyone's I suspect.
My fear of the bureaucracy began soon after 9/11/01 when our CONgress seemed to step up their
disregard for OUR laws, claiming it was in our interest for safety.
Evidently NONE of them ever read Ben Franklin… >;:- ]
.
Here is what I said in response to a left minded thinker…That is a lie and here is a great explanation from an economist at Grove City College…"A budget reflects a president's aspirations and hopes, his wishful thinking as well as his philosophy of politics. It's a mixture of financial planning and political campaigning in which fiscal legerdemain knows no limitations of party or time. The federal budget surpluses since 1998 are no exception to the rule. They obscure significant federal expenditures through bookkeeping gimmickry, such as borrowing new money to pay off old loans and calling it "debt reduction."
Imagine a corporation suffering losses and being deep in debt. In order to boost its stock prices and the bonuses of its officers, the corporation quietly borrows funds in the bond market and uses them not only to cover its losses but also to retire some corporate stock and thereby bid up its price. And imagine the management boasting of profits and surpluses. But that's what the Clinton Administration has been doing with alacrity and brazenness. It suffers sizeable budget deficits, increasing the national debt by hundreds of billions of dollars, but uses trust funds to meet expenditures and then boasts of surpluses which excites the spending predilection of politicians in both parties.
If a corporation executive were to engage in such deceit, the Commissioners of the Securities and Exchange Commission (SEC), who are supposed to promote full public disclosure and protect the investing public against malpractice in the securities markets, would intervene with severity; when a president of the United States and his appointees engage in similar practices, all his men fall silent.
The surplus deception is clearly discernible in the statistics of national debt. While the spenders are boasting about surpluses, the national debt is rising year after year. In 1998, the first year of the legerdemain surplus, it rose from $5.413 trillion to $5.526 trillion, due to a deficit of $112.9 billion. Since then it has risen to $5.643 trillion today, October 15, 2000, with another deficit of $117 billion. "
From a blog I authored in Feb. 2008!!
There WERE NO budget surpluses in the 90s. This is fanciful accounting that ignores intra-government holding of debt to make the deficits "disappear" by covering them with Social Security surpluses. Total National Debt INCREASED every year under Clinton. The last Administration that actual paid down the National Debt even for a single year was Eisenhower's.
Clinton has always gotten way too much credit for the good things that happened in the1990's. The GOP congress held the purse strings and cut him off at the socialist pass in 1994.
He owes Gingrich and the contract with America a wing in his presidential library. He vetoed welfare reform x3, until finally signing it into law — but even then declared he'd overturn it. Now he claims it as the greatest achievement of his presidency.
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Oldie but (still a very enjoyable reread) Goody
Thanks Joe
Anyone can get the historical numbers from the Treasury website. Clinton increased the deficit by 2 Trillion on his watch with no major wars to blame it on.
CBO projections are just that, put in garbage you get garbage out. Look at Obamacare, it was saving before it started costing, because they fudged the numbers with the CBO.
Then Gores Internet bubble bursted leaving behind a recession for Bush to clean up on top of 9/11.
All it takes to go from a deficit to a surplus is some funny math and liberals are very good at that.
America has voted for a lifestyle that it can't pay for. Time to face the piper and get our house back in order.
SLICK WILLIE CLINTON used a government accounting TRICK to get his budget surpluses…………..
CLINTON USED THE PAYMENTS INTO SOCIAL SECURITY BY EMPLOYERS AND EMPLOYEES……………….
TO BUY OUTSTANDING US GOVERNMENT DEBT………………
because governmental debt owned by another government entity is not reported as debt.
I'm currently studying for my CPA and know what you're talking about. Its pretty unfair the the Bush admin basically told the CBO to stop cooking the books with regards to pensions and was attacked as being fiscally irresponsible for doing so.
They aren't lying. They didn't spend over budget. You must understand that congress has the fiscal restraint of an 18 year old with daddy's trust fund. Actually meeting their budget was such an accomplishment they celebrated. Whereas celebrating means fought over who could overspend it faster. Term limits, they will never get a chance to get used to spending other people's money
TY Corn. I thought we would have made so much headway with the Congress of 1994 …has been downhill ever since. And now …feel like we are all "free falling" with no friggin' parachutes.
If you want to know the truth, there was no budget surplus. The Treasury was issuing bonds during that time to fund cash spending deficits. Just follow the money.
That's predicatable Dem spin. Let's not a forget a few things…
- a peace dividend with the end of the cold war (kudos Reagan)
- the 1994 House upset forced Clinton to tack to the right (kudos Contract with America)
- the advent of the internet (no kudos to Gore)
- repeated overly stimulative policies by Greenspan leading to…
- a tech stock bubble which added illusions of prosperity that were not to last. Greenspan's response to the bursting of the tech bubble set the stage for the far greater housing bubble under Bush, laying a path for Obama into the presidency.
Clinton had the wind at his back in the 90s.
Clinton had the wind at his back in the 90s.
Huge understatement. I come across the Clinton worshipers all the time. I try to explain this to them. It does no good.
They are truly stupid.
Nothing like a strong currency to make a president look bigger than life, eh? That and add a bubble to it and things are rosy.
I remember when Bush came in, Clinton had almost completely depleted our supply of cruise missiles. He had gutted the military-where most of his "spending cuts " came from. A lot of this was used against our longtime ally Serbia, who was "persecuting " poor Muslims who had invaded their province of Kosovo. This is when we lost the Stealth fighter. The news showed the wreckage being picked over, and I was thinking, "now the Russians have our technology, thanks, Clinton!".
I've been arguing this to people around me who claim they are liberals and they can never have a comeback for it. But the liberals and media (one in the same) have been pushing that lie (and continue to) for years now that it's become an un-checked "fact."
The Clinton surplus (and there was a surplus and the debt actually decreased for the first time in a very long time) was caused by a number of things, not just increased revenue from the 1993 tax increase. But the tax increase was a piece and it didn't kill off the economy as Republicans had suggested at the time. It was a tax on the wealthy reversing trickle down.
Added to the increased revenue from this tax increase was a decrease in government spending (some of it in military spending) and economic growth fueled by government investment in something called the Internet.
A balanced approach is best. Conservatives are right that government should not waste money, nor de-incent people from working. But great nations are propelled by great governments. The 1993 increase is important as it shows that the whole notion that low tax rates on the wealthy creates jobs is not true (Just look around you for proof).
Clinton was a good president and he was a rare bird that actually got to a balanced budget. Some military cuts were made but keep in mind, the military is government.
Dan Mitchell's post here is an example of lying with statistics. People can repeat his assertions confident that he must know what he's talking about since it appears to be based on numbers and facts. I was just referred to this post so this issue is a bit old by now. If you go to the OMB link you can get all the numbers. I did. Here are some:
FiscalAs Percentages of GDP
Year Receipts Outlays Surplus or Deficit(−)
199018.021.9-3.9
199117.822.3-4.5
199217.522.1-4.7
199317.521.4-3.9
199418.021.0-2.9
199518.420.6-2.2
199618.820.2-1.4
199719.219.5-0.3
199819.919.10.8
199919.818.51.4
200020.618.22.4
If you plot these numbers (I did) you'll see almost linear growth in revenues (receipts) and linear decline in spending (outlays) resulting in an almost linear trend from deficits to surpluses as Mr. Mitchell shows in his 2nd graph. His plot conveniently covers only the period AFTER Newt Gingrich and his followers took over the House, ignoring that the same trend was occurring BEFORE. Also notice that when the GOP was in control of the House, there was no decrease below the downward trend in spending. Historically astute readers will recall that the GOP house was mostly dedicated to impeaching Clinton.
Here is a cleaner view of the numbers (hopefully – this is not what-you-see-is-what-you-get)
FiscalAs Percentages of GDP
Year Receipts Outlay Surplus or Deficit(−)
1990 18.0 21.9 -3.9
1991 17.8 22.3 -4.5
1992 17.5 22.1 -4.7
1993 17.5 21.4 -3.9
1994 18.0 21.0 -2.9
1995 18.4 20.6 -2.2
1996 18.8 20.2 -1.4
1997 19.2 19.5 -0.3
1998 19.9 19.1 0.8
1999 19.8 18.5 1.4
2000 20.6 18.2 2.4
My original post with mushed together numbers got lost somehow. It went something like this:
Mitchell's post is straight out of "How to lie with statistics." His premise is that the surplus at the end of the Clinton years were due to the Repubs cutting spending. He then presents a graph of the deficit/surplus from 1995 when Gingrich and his followers captured the House. It's compared to CBO and OMB forecasts, which is nonsensical. In fact, if you graph the numbers below (from the OMB link Mitchell provides) you'll see a steady linear increase in revenues and a steady decrease in spending resulting in a steady linear upward trend from deficits to surpluses. Of course this includes the period from 1995 on as shown in Mitchell's graph, which "proves" nothing.
Here is a cleaner view of the numbers (hopefully – this is not what-you-see-is-what-you-get)
Fiscal As Percentages of GDP
Year Receipts Outlay Surplus or Deficit(−)
1990 18.0 21.9 -3.9
1991 17.8 22.3 -4.5
1992 17.5 22.1 -4.7
1993 17.5 21.4 -3.9
1994 18.0 21.0 -2.9
1995 18.4 20.6 -2.2
1996 18.8 20.2 -1.4
1997 19.2 19.5 -0.3
1998 19.9 19.1 0.8
1999 19.8 18.5 1.4
2000 20.6 18.2 2.4
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