>> The bill was passed in 1997 and went into effect in 1998.
>> The economy was in a sustained expansion by 1997 and the capital gains tax cut had a minimal impact on the GDP.
I'm going to try to give you the overview, in 4th grade terms.
The deficit for 1995 was above $200 Billion -- huge figures for that time. In early '95, the CBO and the WH OMB independently projected $200 Billion deficits from then on. This was two years after Clinton's tax hike. Obviously, the tax increase didn't help ANYTHING.
In '95 we got a Republican Congress and they took control. If you look at the Clinton budgets from '95 through '99, from before the election, you would see a projected $1 Trillion in deficits. Clinton, in a panic, hired Dick Morris who came up with the idea of "triangulation", and by implementing Republican inspired programs like welfare reform, combined with the peace dividend, the budget was brought under control.
Yes, the economy was starting to boil in the mid-90s, largely because of these measures (growth was @ 4% when Clinton took office, and the projections were for 2.5% growth after the tax increases). Finally, the cap gain rate cuts caused a huge surge in revenue and THAT is what got us nearly to a balanced budget.
"When Clinton took office he did all the wrong things. He raised taxes sharply, hiking the top bracket from 35% to 39.6% and raised taxes on gasoline. The result was that the economy, which had been recovering, staggered. GDP growth dropped to 0.7% in Clinton’s first quarter (down from 4.3% in Bush’s last quarter) and stayed around 2% for the rest of 1993. Personal income rose 6.3% in 1992 under Bush but slowed to 4.1% under Clinton in 1993." -- Morris
You also may want to check out the 2nd paragraph in Martin Feldstein's article from 1995 (or maybe even read the entire article):
marshallinside.usc.edu
The point is that Clinton owes his success to (a) Republican Congress, (b) Peace Dividend, and (c) Capital Gain rate cuts. These three things account for ALL the deficit reduction in Clinton's two terms. All of it. |
