Democrats Should Ditch Tax-the-Rich Rhetoric

Democrats Should Ditch Tax-the-Rich Rhetoric

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While we have finally dashed the nonsense about Bill Clinton being the first Black president (well, with the exception of some on the Cain Train), there is still that sappy view of the Clinton years that too many Democrats and liberals won’t let go of.

Lately, the sappy chat has been about how well the economy did in spite of increases in marginal tax rates. Democrats have been citing the Clinton years as a basis for jacking up marginal tax rates on America’s richest blokes.  These are the people that the Occupy Wall Street posse refer to as “the one percent.”

This is one of the unfortunate truisms of American politics. Find a bad guy and turn him into Darth Vader. No rationale needed, just as long as we create an evil empire and scare the electorate into thinking that it is about to strike back.

The “us-against-them” scenario ignited by Occupy Wall Street and quietly promoted by the Obama Administration would lead us to believe that economic growth is hindered when the economy’s top tier pay less in taxes and the opposite will happen when the rich pay more. This poorly spun veil does a good job of masking certain facts from the general population. Let’s take another opportunity to unplug from The Matrix.

Time to burn a worm hole, go through a time warp, and revisit the late 1980s and early 1990s.

The Clinton Administration, just like the Obama Administration, inherited a declining economy. Analysis of data from the Bureau of Economic Analysis shows the economy under George H.W. Bush saw private sector investment fall from 13% of gross domestic product to 11.9% of gross domestic product.  Black American unemployment climbed from 11.6% in 1989 to 14.3% in 1992. Government and consumer spending contribution to the economy under George H.W. Bush remained relatively flat from 1989 to 1992. Government spending ranged from 22.9% to 23.5% of gross domestic product while consumer spending as a portion of gross domestic product ranged from 66.1% to 66.5%.

Analysis of data from the Tax Policy Center shows that top marginal tax rates went from 28% in 1989 to 31% by the end of the elder Bush’s presidency.   Also during the elder Bush’s presidency, the economy grew at an annual rate of approximately 1.7%.

After the Clinton Administration took over the White House, the proportion of consumer spending contributing to GDP was relatively the same, between 66.8% to 66.9% during the period 1993 to 1995.   Black American unemployment fell from 11.7% in 1993 to 10.2% in 1995. Private investment contribution to the economy increased from 12.6% in 1993 to 13.8% in 1995.

Marginal tax rates held at 39.60% from 1993 through 1995. The economy, during those first three years, grew at an annual rate of 3.3%.

The administration of George W. Bush did not leave the strongest of economies when it faded stage right in 2008. Annual rate of growth between 2005 and 2008 was 1.4%.

The private sector’s contribution to GDP dropped off a cliff by 2008, going from 17.2% of GDP in 2005 to 14.7% of GDP in 2008. The Bush II Administration managed to talk Congress into reducing the top marginal tax rate to 35%, but apparently that didn’t help boost the paltry per annum growth rate for GDP.   On top of that, Black Americans saw their personal economy taking a hit with unemployment increasing from 9.2% at the end of 2005 to 12.1% by the end of 2008.

Under the Obama Administration, the current annual growth rate in GDP of two percent is better than the rate of growth in the last four years under Bush the younger.

The economy is slightly more consumer driven under the Obama Administration, with consumer spending contribution at 70.7% of GDP in 2009; 70.6% of GDP in 2010; and 70.8% of GDP in 2011. Private sector spending contributed to 11.8% in 2009; 13.1% in 2010; and 13.3% so far in 2011. Black American unemployment has been falling from a rate of 16.2% at the end of 2009 to 15.1% in October 2011.

But before Congress votes willy nilly to raise taxes on anyone, shouldn’t we determine whether taxes will aid in improving the economy? As a fiscal tool, tax increases are typically applied for the purpose of slowing down an overheated economy. While I wouldn’t call the 3.3% per year growth in the Clinton economy overheated, it was a pressure cooker compared to the cold stove economics of the Obama Administration.

If Democrats are so game on replicating the good old days of Bubba, they should focus on two areas often overlooked during their class-warfare, tax-the-rich rhetoric.

First, they should increase the amount and quality of government spending. Yes: I know such talk will get me kicked out of the right-of-center club, but during the Clinton era, government spending contribution to GDP was in excess of 20% for the first four years (1993: 22.1%; 1994: 21.2%; 1995: 20.8%; 1996:20.2%).    The Obama Administration came close during its first year, 19.9%, but saw government contribution to GDP decrease over the following two years (2010: 19.3%; 2011: 18.8%).

I suspect an increase in government spending will be less likely with a GOP-controlled House and the spending caps that may go into effect in Fiscal Year 2013 as a result of the Budget Control Act of 2011. Should there be any increased spending, however, it should primarily be on real infrastructure projects, such as roads, bridges, airports, and railroads. “Greening” building rooftops won’t count.

Second, the Obama Administration has to continue its efforts to open up foreign trade. During Clinton’s third year, imports exceeded exports and net imports amounted to approximately a one percent bleed of GDP. I say bleed because that was money going anywhere else but the U.S.

While the Obama Administration has done a good job of reducing the import bleed from the Bush years, imports are still accounting for an average three percent bleed on GDP.

If the Democrats really want to turn around the economy by using Bubba’s old play book, it is time for the party to turn its back on the tax-the-rich rhetoric, and focus on injecting pure stimulus into the economy and opening up more trade routes.  This will incentivize more private sector investment leading to more hiring.  Tax increases don’t create jobs.

1 COMMENT

  1. I don't know that the dem's "tax-the-rich" rhetoric is, or has ever been about turning around the faltering economy…at least not in any direct sense. Every time I've heard it broached it's addressing deficit reduction and the Republicans' unwillingness to discuss tax increases as a solution. In the immediate future, solving our deficit problem and stimulating our economy (raising private sector contribution to GDP, reducing unemployment, etc) are two different goals that are often in direct conflict with each other. An argument can be made that we are currently placing too much emphasis on the wrong goal (deficit reduction), but I don't think thats the argument this article is making. It sounds like the author is trying to make a link between the dem's tax policy and their economic stimulus plans, which is a little disingenuous.

    Most dems, including the president, recognize that austerity measures are inappropriate during a recession, but have no choice politically but to discuss them because the deficit is an issue currently resonating with voters. I think if Obama had his druthers, he wouldn't raise taxes at all immediately, and would probably try to get through another stimulus bill. But that's politically untenable. So they're talking about deficit reduction, and they are talking about it in the terms they know best — tax the rich.

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