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How Ronald Reagan Rescued Bill Clinton’s Presidency
Then-President-elect Bill Clinton, right, laughs as former President Ronald Reagan presents him with a jar of red, white, and blue jelly beans that Reagan said kept him from going to cigarettes in Los Angeles Nov. 27, 1992. (Photo: Paul J. Richards/AFP/Getty Images)
Longtime Democrat William Galston, deputy assistant to Bill Clinton for domestic policy, wrote a recent column for The Wall Street Journal on the performance of the economy during Bill Clinton’s eight years in office. According to Galston, virtually everything Clinton did was a hit.
Annual real growth in gross domestic product? It averaged a “robust 3.8%.” Inflation? A “restrained … 2.6%.” Payrolls increased nearly 236,000 a month, “the fastest on record for a two-term presidency.” Unemployment “fell from 7.3% in January 1993 to 3.8% in April 2000 before rising slightly to 4.2%” at the end of his second term. Adjusted for inflation, “real median household income rose by 13.9%.”
“What about the poor?” Galston asks, and then exults: “The poverty rate declined during the Clinton administration by nearly one-quarter, from 15.1% to 11.3%, near its historic low. And it declined even faster among minorities.”
It is hard to argue with Galston’s statistics. When Hillary Clinton ran for the presidency in 2016, she vowed to put her husband in charge of the economy because Democrats and most Americans knew it was flourishing when he was in the White House. This columnist acknowledged the point in The Washington Times. But voters, I cautioned, “need to be constantly reminded” that the prosperity materialized because Bill Clinton capitulated to Republicans who had politically pressured him into accepting policies that drove Ronald Reagan’s successful presidency.
Clinton’s first two years in office, Galston fails to tell his readers, ended in an electoral disaster for the Democrats. Determined to go on a high-tax, big-spend binge after winning the Oval Office in 1992, Clinton narrowly won a major income tax increase in the Democratic-controlled Congress. But congressional Republicans blocked his other important initiatives, including a big-spending “stimulus” program, a major energy tax, and Hillary Clinton’s national health care plan.
When 1994 rolled around and with Newt Gingrich leading the Republican off-year election charge from the House with his Reaganized “Contract With America” proposal, the GOP swept both houses of Congress for the first time in 40 years.
The consequence: Bill Clinton executed a policy somersault worthy of the Flying Wallendas. He quickly abandoned many of his first-term proposals, including his wife’s health care plan, informing us that “the era of big government is over.” He now favored balanced budgets and apologized for having “raised [taxes] too much.” With the Republicans calling the shots, he enacted significant tax breaks for business and the middle class, including a 30% cut in the capital gains tax for individuals.
He also signed into law welfare reform legislation, which included popular work requirements that Reagan had placed in his own welfare reform law when he was governor of California. Clinton even used Reagan’s rhetoric to sell the bill he signed.
The measure proved stunningly successful, reducing caseloads by 50% and cutting child poverty in half. Robert Rector, The Heritage Foundation’s welfare expert, wrote much of the 1996 bill that Clinton eventually approved. Overall, the nation, as Galston notes, was clearly enjoying itself.
But let me put up numbers included in the 2016 column, just as glowing as Galston’s, but somewhat different in emphasis.
The unemployment rate had dropped to 4% by the end of Clinton’s presidency, the lowest level in more than 30 years. Joblessness for blacks and Hispanics had been sliced in half, down to 7% and 5%, respectively. The stock market more than doubled between 1998 and 2000. And a miracle occurred. We began paying off the national debt in colossal chunks—in no small part due to the nearly $1 trillion that was cut from the military because Reagan had won the Cold War.
Democrats don’t want to admit it, but the truth is Reagan’s conservative policies dominated the two decades that began with his victory over President Jimmy Carter in 1980.
Reagan’s first two terms produced substantially lower tax rates for individuals and corporations, domestic (nondefense) spending restraint and deregulation, which resulted in the end of those gas lines that had so plagued Carter’s presidency.
Reagan’s first executive order eliminated the price controls Carter clamped on oil and natural gas, which proved a disaster since, as Gingrich noted, “It limited us to buying gasoline every other day depending on the last number of our license plates. From scarcity of gasoline to abundance in six months—this was one of Reagan’s first evident accomplishments.” And the accomplishments kept coming.
Reagan’s first two terms produced lower tax rates for individuals and corporations, domestic (non-military) spending restraint and deregulation, a jobs growth explosion, and a major boom period that went 92 months without a recession (November 1982 to July 1990). At the time, this proved to be the longest peacetime period of sustained economic growth in U.S. history.
The late, great economics writer Warren Brookes noted that under the Gipper, the percentage of low-income families was declining. These folks were moving upward on the wage scale and securing major tax relief through higher deductibles and a tripling of the earned income tax credit. Six million of the poorest working Americans, Brookes pointed out, were dropped from the income tax rolls entirely, prompting the praise of even anti-Republican liberals. Black families made the most impressive gains.
And Reagan achieved something even more remarkable, which also had a profound economic and monetary impact. He brought down the Soviet Empire without dragging this country into war.
He gained this astonishing victory through rejuvenating our economy, rebuilding our military, and engaging in cunning diplomacy. He squeezed Russia economically, placed deadly missiles into Europe that threatened Moscow itself, and armed the Afghans with Stinger missiles—forcing the Russians out of the country they had so brutally invaded.
When Reagan refused to surrender his Strategic Defense Initiative in 1986 at Reykjavik, Iceland, Mikhail Gorbachev, eager to end hostilities with the U.S., decided to end the Cold War, realizing his country, even if it wanted to, could no longer compete with America either militarily or economically. (Gorbachev knew Reagan’s reliance on supply-side economics and his major military strategy, both so harshly mocked by the Democrats, were working all too well in putting his country on the defensive.)
Democrats love to take credit for the good things that happened in the last two decades of the 20th century. But since his election in 1980, Reagan furnished this country with the conservative policies that dramatically reversed Clinton’s disastrous first two years of liberal governance. He also made Clinton’s presidency far more comfortable with his canny strategy that compelled Gorbachev to surrender the Evil Empire.
Reagan, in short, was key to Clinton’s success, an indisputable fact the Clintonites can’t yet bring themselves to acknowledge.
Originally published by Newsmax
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The Best President in Recent History
Since I view Ronald Reagan as an honorary libertarian, I was very happy back in 2013 to see that he won a landslide victory over Barack Obama in a hypothetical poll.
This meant that voters either were old enough to personally experience the benefits of Reaganomics, or they managed to learn some history (in spite of a biased education establishment).
Well, now I have another reason to be happy. According to a new poll shared by Paul Bedard of the Washington Examiner, nearly 70 percent of respondents have a favorable impression of Reagan, easily the best result for all recent presidents.
Reagan also is disliked by the smallest percentage of respondents, a fact that almost surely irks some of my Reagan-hating friends.
And definitely irks Paul Krugman.
My two cents for today is that the current fight between Trumpism and establishment Republicanism is merely stylistic. If you crunch the numbers, you’ll see that both camps are big spenders.
Let’s wrap up with this cartoon strip that captures my sentiments.
P.S. Here’s an amusing story from Reagan about socialism (h/t: Don Boudreaux).
Not quite as good as this video, and it’s not even good enough to get added to this collection of Reagan videos, but it is a good description of why socialism is a failure.
P.S. There was one other president in the 20th century who deserves praise and applause.
Tax Cartels Mean Ever-Higher Tax Rates
When President Biden proposed a “global minimum tax” for businesses, I immediately warned that would lead to ever-increasing tax rates.
Ross Kaminsky of KHOW and I discussed how this is already happening.
I hate being right, but it’s always safe to predict that politicians and bureaucrats will embrace policies that give more power to government.
Especially when they are very anxious to stifle tax competition.
For decades, people in government have been upset that the tax cuts implemented by Ronald Reagan and Margaret Thatchertriggered a four-decade trend of lower tax rates and pro-growth tax reform.
That’s the reason Biden and his Treasury Secretary proposed a 15 percent minimum tax rate for businesses.
And it’s the reason they now want the rate to be even higher.
Though even I’m surprised that they’re already pushing for that outcome when the original pact hasn’t even been approved or implemented.
Here are some passages from a report by Reuters.
Treasury Secretary Janet Yellen will press G20 counterparts this week for a global minimum corporate tax rate above the 15% floor agreed by 130 countries last week…the global minimum tax rate…is tied to the outcome of legislation to raise the U.S. minimum tax rate, a Treasury official said.
The Biden administration has proposed doubling the U.S. minimum tax on corporations overseas intangible income to 21% along with a new companion “enforcement” tax that would deny deductions to companies for tax payments to countries that fail to adopt the new global minimum rate. The officials said several countries were pushing for a rate above 15%, along with the United States.
Other kleptocratic governments naturally want the same thing.
A G7 proposal for a global minimum tax rate of 15% is too low and a rate of at least 21% is needed, Argentina’s finance minister said on Monday, leading a push by some developing countries…
“The 15% rate is way too low,” Argentine Finance Minister Martin Guzman told an online panel hosted by the Independent Commission for the Reform of International Corporate Taxation. …”The minimum rate being proposed would not do much to countries in Africa…,” Mathew Gbonjubola, Nigeria’s tax policy director, told the same conference.
Needless to say, I’m not surprised that Argentina is on the wrong side.
And supporters of class warfare also are agitating for a higher minimum rate. Here are some excerpts from a column in the New York Times by Gabriel Zucman and Gus Wezerek.
In the decades after World War II, close to 50 percent of American companies’ earnings went to state and federal taxes. …it was a golden period. …President Biden should be applauded for trying to end the race to the bottom on corporate tax rates.
But even if Congress approves the 15 percent global minimum corporate tax, it won’t be enough. …the Biden administration to give working families a real leg up, it should push Congress to enact a 25 percent minimum tax, which would bring in about $200 billion in additional revenue each year. …With a 25 percent minimum corporate tax, the Biden administration would begin to reverse decades of growing inequality. And it would encourage other countries to do the same, replacing a race to the bottom with a sprint to the top.
I can’t resist making two observations about this ideological screed.
- Even the IMF and OECD agree that the so-called race to the bottom has not led to a decline in corporate tax revenues, even when measured as a share of economic output.
- Since companies legally avoid rather than illegally evade taxes, the headline of the column is utterly dishonest – but it’s what we’ve learned to expect from the New York Times.
The only good thing about the Zucman-Wezerek column is that it includes this chart showing how corporate tax rates have dramatically declined since 1980.
P.S. For those interested, the horizontal line at the bottom is for Bermuda, though other jurisdictions (such as Monaco and the Cayman Islands) also deserve credit for having no corporate income taxes.
P.P.S. If you want to know why high corporate tax rates are misguided, click here. And if you want to know why Biden’s plan to raise the U.S. corporate tax rate is misguided, click here. Or here. Or here.
P.P.P.S. And if you want more information about why Biden’s global tax cartel is bad, click here, here, and here.
I enjoyed this article below because it demonstrates that the Laffer Curve has been working for almost 100 years now when it is put to the test in the USA. I actually got to hear Arthur Laffer speak in person in 1981 and he told us in advance what was going to happen the 1980’s and it all came about as he said it would when Ronald Reagan’s tax cuts took place. I wish we would lower taxes now instead of looking for more revenue through raised taxes. We have to grow the economy:
What Mitt Romney Said Last Night About Tax Cuts And The Deficit Was Absolutely Right. And What Obama Said Was Absolutely Wrong.
Mitt Romney repeatedly said last night that he would not allow tax cuts to add to the deficit. He repeatedly said it because over and over again Obama blathered the liberal talking point that cutting taxes necessarily increased deficits.
Romney’s exact words: “I want to underline that — no tax cut that adds to the deficit.”
Meanwhile, Obama has promised to cut the deficit in half during his first four years – but instead gave America the highest deficits in the history of the entire human race.
I’ve written about this before. Let’s replay what has happened every single time we’ve ever cut the income tax rate.
The fact of the matter is that we can go back to Calvin Coolidge who said very nearly THE EXACT SAME THING to his treasury secretary: he too would not allow any tax cuts that added to the debt. Andrew Mellon – quite possibly the most brilliant economic mind of his day – did a great deal of research and determined what he believed was the best tax rate. And the Coolidge administration DID cut income taxes and MASSIVELY increased revenues. Coolidge and Mellon cut the income tax rate 67.12 percent (from 73 to 24 percent); and revenues not only did not go down, but they went UP by at least 42.86 percent (from $700 billion to over $1 billion).
That’s something called a documented fact. But that wasn’t all that happened: another incredible thing was that the taxes and percentage of taxes paid actually went UP for the rich. Because as they were allowed to keep more of the profits that they earned by investing in successful business, they significantly increased their investments and therefore paid more in taxes than they otherwise would have had they continued sheltering their money to protect themselves from the higher tax rates. Liberals ignore reality, but it is simply true. It is a fact. It happened.
Then FDR came along and raised the tax rates again and the opposite happened: we collected less and less revenue while the burden of taxation fell increasingly on the poor and middle class again. Which is exactly what Obama wants to do.
People don’t realize that John F. Kennedy, one of the greatest Democrat presidents, was a TAX CUTTER who believed the conservative economic philosophy that cutting tax rates would in fact increase tax revenues. He too cut taxes, and he too increased tax revenues.
So we get to Ronald Reagan, who famously cut taxes. And again, we find that Reagan cut that godawful liberal tax rate during an incredibly godawful liberal-caused economic recession, and he increased tax revenue by 20.71 percent (with revenues increasing from $956 billion to $1.154 trillion). And again, the taxes were paid primarily by the rich:
“The share of the income tax burden borne by the top 10 percent of taxpayers increased from 48.0 percent in 1981 to 57.2 percent in 1988. Meanwhile, the share of income taxes paid by the bottom 50 percent of taxpayers dropped from 7.5 percent in 1981 to 5.7 percent in 1988.”
So we get to George Bush and the Bush tax cuts that liberals and in particular Obama have just demonized up one side and demagogued down the other. And I can simply quote the New York Times AT the time:
Sharp Rise in Tax Revenue to Pare U.S. Deficit By EDMUND L. ANDREWS Published: July 13, 2005
WASHINGTON, July 12 – For the first time since President Bush took office, an unexpected leap in tax revenue is about to shrink the federal budget deficit this year, by nearly $100 billion.
A Jump in Corporate Payments On Wednesday, White House officials plan to announce that the deficit for the 2005 fiscal year, which ends in September, will be far smaller than the $427 billion they estimated in February.
Mr. Bush plans to hail the improvement at a cabinet meeting and to cite it as validation of his argument that tax cuts would stimulate the economy and ultimately help pay for themselves.
Based on revenue and spending data through June, the budget deficit for the first nine months of the fiscal year was $251 billion, $76 billion lower than the $327 billion gap recorded at the corresponding point a year earlier.
The Congressional Budget Office estimated last week that the deficit for the full fiscal year, which reached $412 billion in 2004, could be “significantly less than $350 billion, perhaps below $325 billion.”
The big surprise has been in tax revenue, which is running nearly 15 percent higher than in 2004. Corporate tax revenue has soared about 40 percent, after languishing for four years, and individual tax revenue is up as well.
And of course the New York Times, as reliable liberals, use the adjective whenever something good happens under conservative policies and whenever something bad happens under liberal policies: ”unexpected.” But it WASN’T ”unexpected.” It was EXACTLY what Republicans had said would happen and in fact it was exactly what HAD IN FACT HAPPENED every single time we’ve EVER cut income tax rates.
The truth is that conservative tax policy has a perfect track record: every single time it has ever been tried, we have INCREASED tax revenues while not only exploding economic activity and creating more jobs, but encouraging the wealthy to pay more in taxes as well. And liberals simply dishonestly refuse to acknowledge documented history.
Meanwhile, liberals also have a perfect record … of FAILURE. They keep raising taxes and keep not understanding why they don’t get the revenues they predicted.
The following is a section from my article, “Tax Cuts INCREASE Revenues; They Have ALWAYS Increased Revenues“, where I document every single thing I said above:
The Falsehood That Tax Cuts Increase The Deficit
Now let’s take a look at the utterly fallacious view that tax cuts in general create higher deficits.
Let’s take a trip back in time, starting with the 1920s. From Burton Folsom’s book, New Deal or Raw Deal?:
In 1921, President Harding asked the sixty-five-year-old [Andrew] Mellon to be secretary of the treasury; the national debt [resulting from WWI] had surpassed $20 billion and unemployment had reached 11.7 percent, one of the highest rates in U.S. history. Harding invited Mellon to tinker with tax rates to encourage investment without incurring more debt. Mellon studied the problem carefully; his solution was what is today called “supply side economics,” the idea of cutting taxes to stimulate investment. High income tax rates, Mellon argued, “inevitably put pressure upon the taxpayer to withdraw this capital from productive business and invest it in tax-exempt securities. . . . The result is that the sources of taxation are drying up, wealth is failing to carry its share of the tax burden; and capital is being diverted into channels which yield neither revenue to the Government nor profit to the people” (page 128).
Mellon wrote, “It seems difficult for some to understand that high rates of taxation do not necessarily mean large revenue to the Government, and that more revenue may often be obtained by lower taxes.” And he compared the government setting tax rates on incomes to a businessman setting prices on products: “If a price is fixed too high, sales drop off and with them profits.”
And what happened?
“As secretary of the treasury, Mellon promoted, and Harding and Coolidge backed, a plan that eventually cut taxes on large incomes from 73 to 24 percent and on smaller incomes from 4 to 1/2 of 1 percent. These tax cuts helped produce an outpouring of economic development – from air conditioning to refrigerators to zippers, Scotch tape to radios and talking movies. Investors took more risks when they were allowed to keep more of their gains. President Coolidge, during his six years in office, averaged only 3.3 percent unemployment and 1 percent inflation – the lowest misery index of any president in the twentieth century.
Furthermore, Mellon was also vindicated in his astonishing predictions that cutting taxes across the board would generate more revenue. In the early 1920s, when the highest tax rate was 73 percent, the total income tax revenue to the U.S. government was a little over $700 million. In 1928 and 1929, when the top tax rate was slashed to 25 and 24 percent, the total revenue topped the $1 billion mark. Also remarkable, as Table 3 indicates, is that the burden of paying these taxes fell increasingly upon the wealthy” (page 129-130).
Now, that is incredible upon its face, but it becomes even more incredible when contrasted with FDR’s antibusiness and confiscatory tax policies, which both dramatically shrunk in terms of actual income tax revenues (from $1.096 billion in 1929 to $527 million in 1935), and dramatically shifted the tax burden to the backs of the poor by imposing huge new excise taxes (from $540 million in 1929 to $1.364 billion in 1935). See Table 1 on page 125 of New Deal or Raw Deal for that information.
FDR both collected far less taxes from the rich, while imposing a far more onerous tax burden upon the poor.
It is simply a matter of empirical fact that tax cuts create increased revenue, and that those [Democrats] who have refused to pay attention to that fact have ended up reducing government revenues even as they increased the burdens on the poorest whom they falsely claim to help.
Let’s move on to John F. Kennedy, one of the most popular Democrat presidents ever. Few realize that he was also a supply-side tax cutter.
“It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now … Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.”
– John F. Kennedy, Nov. 20, 1962, president’s news conference
“Lower rates of taxation will stimulate economic activity and so raise the levels of personal and corporate income as to yield within a few years an increased – not a reduced – flow of revenues to the federal government.”
– John F. Kennedy, Jan. 17, 1963, annual budget message to the Congress, fiscal year 1964
“In today’s economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarges the federal deficit – why reducing taxes is the best way open to us to increase revenues.”
– John F. Kennedy, Jan. 21, 1963, annual message to the Congress: “The Economic Report Of The President”
“It is no contradiction – the most important single thing we can do to stimulate investment in today’s economy is to raise consumption by major reduction of individual income tax rates.”
– John F. Kennedy, Jan. 21, 1963, annual message to the Congress: “The Economic Report Of The President”
“Our tax system still siphons out of the private economy too large a share of personal and business purchasing power and reduces the incentive for risk, investment and effort – thereby aborting our recoveries and stifling our national growth rate.”
– John F. Kennedy, Jan. 24, 1963, message to Congress on tax reduction and reform, House Doc. 43, 88th Congress, 1st Session.
“A tax cut means higher family income and higher business profits and a balanced federal budget. Every taxpayer and his family will have more money left over after taxes for a new car, a new home, new conveniences, education and investment. Every businessman can keep a higher percentage of his profits in his cash register or put it to work expanding or improving his business, and as the national income grows, the federal government will ultimately end up with more revenues.”
– John F. Kennedy, Sept. 18, 1963, radio and television address to the nation on tax-reduction bill
Which is to say that modern Democrats are essentially calling one of their greatest presidents a liar when they demonize tax cuts as a means of increasing government revenues.
So let’s move on to Ronald Reagan. Reagan had two major tax cutting policies implemented: the Economic Recovery Tax Act (ERTA) of 1981, which was retroactive to 1981, and the Tax Reform Act of 1986.
Did Reagan’s tax cuts decrease federal revenues? Hardly:
We find that 8 of the following 10 years there was a surplus of revenue from 1980, prior to the Reagan tax cuts. And, following the Tax Reform Act of 1986, there was a MASSIVE INCREASEof revenue.
So Reagan’s tax cuts increased revenue. But who paid the increased tax revenue? The poor? Opponents of the Reagan tax cuts argued that his policy was a giveaway to the rich (ever heard that one before?) because their tax payments would fall. But that was exactly wrong. In reality:
“The share of the income tax burden borne by the top 10 percent of taxpayers increased from 48.0 percent in 1981 to 57.2 percent in 1988. Meanwhile, the share of income taxes paid by the bottom 50 percent of taxpayers dropped from 7.5 percent in 1981 to 5.7 percent in 1988.”
So Ronald Reagan a) collected more total revenue, b) collected more revenue from the rich, while c) reducing revenue collected by the bottom half of taxpayers, and d) generated an economic powerhouse that lasted – with only minor hiccups – for nearly three decades. Pretty good achievement considering that his predecessor was forced to describe his own economy as a “malaise,” suffering due to a “crisis of confidence.” Pretty good considering that President Jimmy Carter responded to a reporter’s question as to what he would do about the problem of inflation by answering, “It would be misleading for me to tell any of you that there is a solution to it.”
Reagan whipped inflation. Just as he whipped that malaise and that crisis of confidence.
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The Laffer Curve, Part III: Dynamic Scoring
The Daily Hatch 