For somebody who defeated a Clinton to get into office in the first place, President Obama has spent an awful lot of time invoking the Clinton legacy on the campaign trail. In a speech in Oakland, Calif., on Tuesday, the president repeated what has become the Left's received -- and distorted -- wisdom from the Clinton years.
"I'm also going to ask anybody making over $250,000 a year to go back to the tax rates they were paying under Bill Clinton, back when our economy created 23 million new jobs," Obama said, adding: "Just like we've tried their plan, we tried our plan -- and it worked. That's the difference."
The following day, the Democrat-led Senate proved that was not just idle rhetoric when it pushed through the tax increase on a slim 51-48 vote. (Virginia's Jim Webb and Connecticut's Joe Lieberman, both lame ducks, voted with the GOP.) The Democrats' theory is not so much that a higher tax rate will help the economy or put a serious dent in the deficit, but rather that it is fairer.
But take a look at Obama's example. Under President Clinton, the tax rates had two major adjustments -- a tax hike in 1993 and a tax cut in 1997. In 1993, the top marginal rate was raised to 39.6 percent and the corporate rate to 35 percent. From then through 1997, the economy grew at an average annual rate of 3.2 percent in inflation-adjusted terms -- which is respectable, but not the boom we all remember. Wages stagnated during that same four-year period, growing by less than 1 percent overall.
In 1997, a Republican Congress pushed Clinton to agree to what we now call "tax cuts for the wealthy." He signed a bill lowering the top tax rate on capital gains from 28 percent to 20 percent; raising the exemption from the estate tax (or death tax, if you prefer) from $600,000 to $1 million. What happened next? Between 1997 and 2000, the economy boomed. It posted 4.2 percent growth, and wages grew 6.5 percent. Unemployment, which stood at a very decent 5.3 percent in 1997, fell to 4.2 percent, a level so low that many economists previously thought it was unreachable. The stock market boomed. Total market capitalization of the S&P 500 rose by 95 percent between 1997 and 2000. And despite the lowering of the rate, capital gains tax receipts rose from $67 billion in 1996 to $115 billion in 1999.
So what exactly is the lesson of the Clinton economy? To be sure, there is much more to the story than tax rates, but it seems a stretch to conclude from the experience that higher rates are somehow better. Quite the contrary, in fact. The fondly remembered Clinton boom years immediately followed a lowering of taxes on investments and inheritances precisely the sort of tax cuts Obama now denounces as "their plan," which supposedly didn't work.