Former senior economic advisor to Reagan says Clinton Era tax rates won’t hurt economy

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Bloomberg: Raising taxes no 'Kiss of Death' for job growth, history shows

According to Bloomberg, former Reagan senior economic advisor and economist at the University of Michigan’s business school Joel Slemrod stated that going back to the Clinton Era tax rates wouldn’t hurt the economy.

Well…that’s a surprise.  It’s not like we have history to look at or anything.  Now we even have conservative champion Ronald Reagan’s former senior economic advisor telling us what liberals already know.  Slemrod made known that high tax countries usually perform well economically.

“High GDP countries are high tax countries,” stated Slemrod.  “That doesn’t mean high taxes cause high GDP.”  Slemrod continued by explaining that raising taxes today might be risky, as the economy is still fragile,  but letting the Bush tax cuts run out as Obama proposes wouldn’t be “…the kiss of death for economic growth.”

So why is it that we can’t address spending AND revenue? 

Conservatives are always trying to tell liberals that taxing inhibits growth.  Unfortunately for them, history dictates otherwise.  As a matter of fact, some of the United States’ largest economic growth came when taxes were higher.

Take the 1950s, which had one of strongest periods of economic growth in American history.  In the 50s, the highest marginal tax rate reached over 90 percent.

 

We can also look at the 90s and compare them to the 2000s.  No one will deny that economic growth in the 90s was far superior to that of the 2000s.  I am still waiting for someone to show me proof that higher taxation inhibits job growth, and, for that matter, show me how and when lower taxes has helped growth.

ThinkProgress

After the $241 billion tax increase in 1993, which Republicans heralded as the largest increase ever, 15 million jobs were created and the economy grew at an average annual rate of 2.8 percent.  Contrast this with the five years following the Bush’s tax cuts.  These cuts reduced marginal rates, raised the child tax credit, gave “marriage penalty” tax relief to two-income households, and phased out the estate tax.  The economy grew at an annual rate of 2.7 percent and created 6.5 million jobs.

Vice President Joe Biden’s former economic advisor stated, “We should be extremely wary of anyone making the argument that any tax increase at any time is going to kick the legs out from under the economy.  If you look at the 1990s versus the 2000s, you’d draw the opposite conclusion.”

Other examples include the five months after Clinton signed the Omnibus Budget Reconciliation Act of 1993.  The Congressional Budget Office (CBO) predicted a deficit of $204 billion in 1999.  Instead, revenue flooded the Treasury and the government ran a $126 billion surplus. 

Let’s contrast this once again with the Bush tax cuts.  The CBO predicted a surplus of over $166 billion after the first cut in 2002.  The actual outcome proved a $161 billion deficit.

Bloomberg opined that Washington’s political dialogue over tax increases “obscures a distinction being drawn by a growing number of Republicans: Raising tax rates chills growth. Raising revenue by collecting taxes on income that's now off limits to the taxman doesn't.”

This falls into one of the compromises liberals are trying to make with conservatives.  Conservatives never want to put raising taxes on the table, though history dictates that this should be an explorable option.  I mean, what would happen to their campaign contributions if they did that?  Their famous line, “everything is on the table,” limits fifty percent of what makes up a budget plan. 

Everything has to be on the table.

Even if we don’t raise tax rates, Bloomberg explained that “tax revenue could still be increased by limiting business subsidies, such as for domestic production, or capping individual deductions for mortgage interest, employer-provided health insurance or charitable contributions.”  Harvard University professor Martin Feldstein reported that capping such tax expenditures could save $278 billion dollars alone.  Doing this "doesn't discourage effort or entrepreneurship and doesn't reduce saving and risk taking," said Feldstein, who was Reagan's top economic adviser.  "It therefore doesn't hurt economic growth."

It doesn’t get much clearer.  You have history AND Reagan’s top advisor’s telling us that raising taxes would benefit the economy.  It can’t be stated any clearer than economist Mark Sullivan:  "The clear-cut evidence is that, despite the rhetoric, a tax increase that reduced the deficit would actually improve economic growth.”