I couldn’t let Election Day pass without pointing out one more example of Hillary Clinton’s disingenuousness. More than once, during the presidential debates, she characterized Trump’s tax proposals as a return to the failed policies of the Bush administration, meaning, to a certain extent, the Bush tax cuts, claiming they would cause a return to the economic malaise that existed at the time President Obama took office. She then went on to boast that her husband’s administration, on the other hand, had turned a substantial budget deficit into a significant surplus, the implication being that a major reason for this achievement was increasing taxes, as she intends to do. For years, Bill Clinton has claimed credit for the performance of the economy during his time in office, and Hillary has been riding on the back of that somewhat deceptive viewpoint.
Time does not permit me to do this subject justice, but allow me to present a barebones outline of the whole story.
The performance of the economy and the creation of a surplus had little or nothing to do with Clinton’s tax increases. It was, in part, because of a very healthy increase in government revenue due to the Dotcom bubble, for which Clinton cannot take credit. (Although I suppose if you believe Al Gore’s claim of having invented the Internet, the administration does deserve most of the credit.)
The other component of the creation of surpluses was fiscal restraint, which Clinton has also taken as his own. During his eight years in office, federal spending dropped from 22.1% of GDP to 18.2%. But the major impetus behind this reduction was the election of the Republican-controlled Congress in 1994. Newt Gingrich became Speaker of the House with the intent of eventually balancing the budget, which Clinton, at first, strenuously resisted. The budget battle over the FY96 budget resulted in two Government shutdowns and five Budget submittals before Clinton’s spending proposals finally got down to levels consistent with the House’s intent. To Clinton’s credit, he was able to work with the Congress to eventually produce four straight years of balanced budgets, starting in FY98. How much of this was subject to the political realities he faced is subject to debate. The bad news was that, in the process, the military budget took some big hits.
As to the failed policies of the Bush administration, the first Hillary misconception is that his tax cuts played a role in the eventual economic collapse. (Bear in mind that Clinton agreed to a cut in the Capital Gains tax from 28% to 20%–another gap in Hillary’s narrative– which many people think was one of the more beneficial economic moves he made.) The Bush cuts were enacted in 2001 and 2003, yet revenue continued to increase to an all-time high, at that point, in 2007. Certainly, Bush benefited from the economic activity the housing boom was generating, but, obviously, the tax cuts weren’t doing any harm. Remember that the economy had slowed down as Bush took office due to the end of the Dotcom bubble, and the 9/11 attacks compounded the problem, so cutting taxes was not an unwise policy under the circumstances.
Bush did increase spending, although part of that was necessitated by the need to rebuild the military, particularly with demands of the Afghan and Iraqi wars. But the primary reason the economy failed towards the end of Bush’s second term was, of course, the bursting of the Housing Bubble. Guess who started that whole episode in the first place, Bill Clinton. Clinton wanted to increase the percentage of home ownership among lower income Americans who were not financially able to qualify for home loans. To that end, he and the two HUD secretaries who served under him pushed Fannie Mae and Freddie Mac, the government-sponsored mortgage agencies, to promote home loans to under-qualified borrowers, in part under the auspices of the Community Reinvestment
Act of 1977. These subprime and Alt-A loans became the foundation for the Housing Bubble. The two agencies pushed the private sector to make these loans, which they backed and also bought, and then, as the volume of loans increased, bundled them into securities which they sold to provide the funds to back even more of these substandard loans.
The private sector did its part by encouraging borrowers to take out these easy to obtain loans, which they never could hope to repay, and trading heavily in the securities backed by these mortgages. Another Clinton contribution to the mess was his support of the repeal of the Glass-Steagall Act from the 1930’s, which had required banks keep their consumer and investment businesses entirely separate from one another. With this barrier removed, as I understand it, banks began using funds from their consumer division to invest in these mortgage-backed instruments which exposed their retail customers to the risk.
Bush was not entirely blameless since he did let this house of cards continue to grow for some time but, beginning to sense a problem, he began asking Congress to intervene and bring Fannie and Freddie under control. Despite multiple requests for reform, he was rebuffed, or ignored, by Sen. Chris Dodd, chairman of the Senate Banking Committee, and, until later in the game, by Rep. Barney Frank, Ranking Member and later Chairman of the House Financial Services Committee, who had been one of the strongest advocates of the mortgage program in the beginning. Ultimately, and inevitably, people began to default on these loans, which they never should have qualified for, in ever-increasing numbers and the house of cards collapsed.
As you can see, while Clinton cannot be held accountable for many of the abuses which eventually occurred, he should have had the foresight to suspect they might, so the story he and Hillary tell of his ‘sterling’ economic record must at least include the housing crisis as a counterpoint.
Conversely, Bush should have acted sooner and been more proactive in his dealings with Congress, but the recession was most certainly not caused by his tax cuts, and Bill Clinton is no economic prodigy.
[In addition to my own recollections, much of the information in this post came from four articles. In no particular order: “Bubba and the housing bubble” by Charles Gasparino. New York Post, nypost.com, 9/5/12. “Correcting the Clinton Record: Tax Cuts, Spending Restraint, Moderation” by Timothy H. Lee. Center For Individual Freedom, cfif.org, 9/6/2012. “No, Bill Clinton Didn’t Balance the Budget” by Stephen Moore. Cato Institute, cato.org, 10/8/98. and “Clinton’s Spending Cuts-Not His Tax Hikes-Worked” by Edward Morrissey. The Fiscal Times, thefiscaltimes.com, 12/5/12]