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1993 Deficit Reduction: A lesson on
taxes, economic growth, and jobs—as reported by America’s premier
CONSERVATIVE financial daily news publication:
The Wall Street Journal
Conservative politicians always threaten
the public that, if Congress or the President raises taxes on the wealthy,
the economy will slow down, unemployment will go up, and workers' wages
will go down.
Conservatives’ hidden agenda: we want to
allow our wealthy supporters—the ones who benefited most from the economic
policies that forced huge sacrifices onto American workers during the
1980s and 90s—to be able to keep more of their money.
Reality: Raising taxes on the wealthy is
much more likely to reduce the deficit and make more money available to
proactively solve America’s problems—and save money in the long run. In
addition, it may have absolutely no negative effect on economic growth,
jobs or wages.
Here’s what conservative politicians said
about the 1993 deficit reduction legislation that raised taxes on the top
1.2% of our wealthiest citizens:
"Clearly, this is a job-killer in the short-run. The impact
on job creation is going to be devastating."
—Rep. Dick Armey, (Republican, Texas)
"The tax increase will…lead to a recession…and will actually increase
—Rep. Newt Gingrich (Republican, Georgia)
"I will make you this bet. I am willing to risk the mortgage on
it…the deficit will be up; unemployment will be up; in my judgment,
inflation will be up."
—Sen. Robert Packwood (Republican, Oregon)
"The deficit four years from today will be higher than it is today,
—Sen. Phil Gramm (Republican, Texas)
"The President promised a middle-class tax cut, yet he and his party
imposed the largest tax increase in American history. We hope his higher
taxes will not cut short the economic recovery and declining interest
rates he inherited… Instead of stifling growth through higher taxes and
increased government regulations, Republicans would take America in a
—Sen. Robert Dole (Republican, Kansas)
So, what was the Wall Street
Journal’s analysis of the the 1993 deficit reduction
A Vote for Clinton’s Economic Program Becomes
Platform for Often-Misleading GOP Attacks
Contrary to Republican claims, the 1993 package with a $240 billion
tax increase is not "the largest tax increase in history."
The 1982 deficit-reduction package of President Reagan and Sen.
Robert Dole in a GOP-controlled Senate was a bigger tax bill, both in
1993-adjusted dollars and as a percentage of the overall economy; and
both recent laws are dwarfed by the tax bills of World War II.
Moreover, except for a small gasoline-tax boost and an increase for
the best-off Social Security recipients, the tax increases in last years
bill mostly didn’t touch the middle class but hit the wealthiest 1.2% of
GOP candidates also ignore the bill’s tax cuts for individuals and
businesses, and nowhere do they describe the plan as a $433 billion,
five-year deficit-reduction package.
"It’s the silly season. People are running for office, and people who
run for office say silly things," says Carol Cox Wait, a former top GOP
aide on the Senate Budget Committee who now heads the Committee for a
Responsible Federal Budget…
In all but 11 of the 435 House districts, more taxpayers were
eligible for an income-tax cut than got a tax boost… Even in those 11
districts… more than three-quarters of the people saw no change at all
in income taxes.
—WALL STREET JOURNAL, October 26, 1994,
And what was the Journal’s take
on the subject three years later?
Scary Deficit Forecasts For Clinton Years
Fade As Tax
It Rises Faster Than Outlays, Thanks to ’93 Budget
And a Steady Economy
Where has the federal deficit gone?
When Bill Clinton was elected president four years ago, the
government was hemorrhaging red ink at a rate of almost $300 billion a
year, and forecasters saw little improvement in the offing. Today, his
budget office estimates the fiscal 1996 deficit at just $117 billion—the
lowest in dollar terms since 1981, the year Ronald Reagan took office.
Measured as a share of the total economy, the U.S. deficit this year
will run only about 1.6%—smaller than the deficits of Japan, Germany,
Britain or, indeed, any of the world’s advanced nations except Norway.
Clearly, a stronger-than-expected economy has a lot to do with it.
The tax increases in the 1993 deficit-reduction package that Mr. Clinton
pushed through get credit as well. And, to a lesser extent, so do the
spending cuts engineered by the Republican Congress…
For the current fiscal year, ending Sept. 30, collections now are
expected to be $97 billion higher than the $1.356 trillion the
Congressional Budget Office projected 3 ½ years ago as Mr. Clinton was
taking office. That is about 7% more.
By the CBO’s analysis, just over half of the $97 billion increase
beyond projections is due to tax boosts in Mr. Clinton’s 1993
antideficit plan. The rest is due to a variety of factors.
—WALL STREET JOURNAL, August 1, 1996,
(Note: For the deficit reduction, the Journal gave
more credit to Clinton’s tax increases than to the cost-cutting Republican
And another year later—the
Journal is still giving credit to "tax-on-wealthy" for
the deficit reduction:
Tax on Wealthy Is Boosting U.S. Revenue
Treasury Says 1993 Increase Is Helping Cut the
President Clinton sold the 1993 income-tax increase as a way to
shrink the budget deficit at the expense of the rich.
Republican adversaries predicted it wouldn’t generate much revenue
because the rich would work less and take bigger deductions. Now there’s
growing, if still tentative, evidence that Mr. Clinton may have been
right after all.
The recent flood of revenue pouring into Treasury coffers—enough to
push the federal budget to a record $93.94 billion surplus for the month
of April—appears to have come mostly from the nation’s biggest earners,
indicating that the controversial tax increase may indeed be taking from
the rich. "The available data suggest the surge in tax collections has
come from the taxpayers with high incomes, who were the only ones
affected by the 1993 changes," says Deputy Treasury Secretary Lawrence
Corporate taxes, which were increased modestly under the 1993 law,
also have brought in more revenue, but at about the level the Treasury
had been predicting…
The package, part of the 1993 budget agreement, drew harsh criticism
from the right. Texas GOP Rep. Dick Armey, who is now the House majority
leader, predicted dire results, "Who can blame many second-earner
families for deciding that the sacrifice of a second job is no longer
worth it?" he wrote...
"The basic fact is that people looked at the 1993 budget agreement
and said there’d be a recession, the deficit would go way up and that
tax collections would go way down," says Mr. Summers. "What has happened
is there has been a boom, the deficit has gone way down and tax
collections have gone way up."
—WALL STREET JOURNAL, May 22, 1997,
Not only was the
entire national deficit eliminated after raising taxes on the wealthy in
1993, but the economy grew so fast for the remainder of the decade that
many conservative economists thought that the Fed should raise the prime
interest rate in order to slow it down.
This is another of conservatives’ hidden
agendas: they keep promising workers that if we cut taxes on the wealthy
and the economy grows, their wages will go up. But when wages even
start to go up—for whatever reason—conservatives do everything they
can to slow down the economy. They never openly tell the public about
the second part of their strategy when they discuss taxes, economic growth
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