OPINION:
Bill Clinton’s new book doesn’t mince words about the dismal state of the Obama economy. The former president flatly declares, “We’re in a mess now.”
Are we ever. But the fact that this withering indictment comes from a former Democratic president, who is widely credited for the strong job-creating economy that emerged in his second term, is an embarrassing lecture from a political master who thinks President Obama is in over his head.
This is the news equivalent of “man bites dog,” or in this case, “Democrat bites Democrat.”
Mr. Clinton not only criticizes Mr. Obama’s economy but also his relentless attacks on Wall Street executives (although he is happy to take their money for his campaign).
“Many of them supported me when I raised their taxes in 1993, because I didn’t attack them for their success,” Mr. Clinton writes in “Back To Work: Why We Need Smart Government for a Strong Economy” (Knopf, 2011).
That cutting criticism, among others in the book, led to “some eye-rolling among senior Obama advisers,” said The Washington Post, and maybe a few expletives to boot.
Even the title of Mr. Clinton’s book is a slap at Mr. Obama’s economic incompetence.
If “we need smart government for a strong economy,” as Mr. Clinton correctly states, it necessarily follows that we now have incompetent government and a dangerously weak economy.
“It is heartening that people all over the world want to pursue their version of the American Dream but troubling that others are doing a better job than we are of providing it to their people,” Mr. Clinton says.
He also takes Mr. Obama to task for not dealing with the debt-ceiling issue in his first two years, when he had huge Democratic majorities in Congress, and for failing to come up with a coherent campaign message to blunt the GOP’s political attacks in the 2010 midterm elections.
Mr. Clinton offers his own prescriptions for economic growth, including passage of President George W. Bush’s free-trade agreements that Mr. Obama belatedly signed last month after nearly three years of inaction.
But Mr. Clinton already had been offering more far-reaching advice on the economy that Mr. Obama has been ignoring to his own political peril: This is no time to be raising taxes.
“I personally don’t believe we ought to be raising taxes or cutting spending, either one, until we get this economy off the ground,” Mr. Clinton said earlier this fall in an interview with Newsmax.
Notably, he warned against imposing new government regulations, “particularly in a fragile time [when employers] don’t like to have too many things changing at once,” he said. “A business can’t do five things at once and decide whether to get back into the investment business after it’s slow.”
Mr. Obama rejects Mr. Clinton’s advice on both grounds. His nearly $500 billion jobs bill calls for raising taxes on higher-income Americans, investors, corporations and small businesses. He has made no effort to roll back the massive business, health care and financial regulatory apparatus he put in place in his first two years.
However, there’s one economic initiative Mr. Clinton took in his second term that had a lot to do with his success on the economy, but he never mentions it. It’s one that the current president would do well to study.
In 1997, Mr. Clinton signed a Republican tax-relief and deficit-reduction bill that reduced the top capital gains tax rate from 28 percent to 20 percent, created tax-free Roth IRAs that encouraged millions of Americans to save and invest for their retirement, and added a new $500 child tax credit, among other pro-growth initiatives.
Until that time, after a short and shallow recession, the economy was doing just OK, growing at a modest annual rate of 3.2 percent in inflation-adjusted terms from 1993 to 1996. It was a solid, “but not spectacular performance in the overall economy,” says J.D. Foster, chief Heritage Foundation economist.
But it was the capital gains tax cut that really lifted the Clinton economy into the stratosphere, unlocking venture capital investment that is the lifeblood of new enterprises and new jobs.
“By 1998, the first full year in which the lower capital gains rates were in effect, venture capital activity reached almost $28 billion, more than a three-fold increase over 1995 levels, and by 1999, it had doubled again,” Mr. Foster said in an economic analysis.
“The explosion in venture capital activity cannot be credited entirely to the cut in capital gains tax rates,” he acknowledges, because it came at a time when the high-tech Internet-based economy was exploding with start-ups and the jobs that came with it.
Nonetheless, “the rapid development and application of these new technologies could not have occurred at such a rapid clip absent the enormous investment flows made possible largely by the reduction in the capital gains tax rate,” Mr. Foster said.
The economy during this 1997 to 2000 tax cut period averaged 4.2 percent real growth per year, a percentage point higher than the expansion that followed Mr. Clinton’s 1993 tax increases. Employment exploded with another 11.5 million jobs and real wages rose by 6.5 percent, far stronger than the 0.8 percent growth in his first term.
The data offers persuasive proof that Mr. Clinton’s tax hikes slowed the economy’s full potential, while his ’97 tax cuts accelerated real growth in his second term.
Mr. Clinton never talks about the capital gains tax cuts he signed because that’s not what his tax-happy party wants to hear. But there is a lesson here that Congress can learn from.
The anemic, jobless Obama economy is in desperate need of a transfusion of venture capital investment and the less you tax it, the more you will get.
Donald Lambro is a syndicated columnist and former chief political correspondent for The Washington Times.
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