Saturday, February 6, 2010

What Was Wrong With The Clinton Tax Code?

Arguably that it was insufficiently progressive. Of course, that is not what one heard during the Bush presidency when that tax code was made both more regressive as well as less able to collect revenues, playing a non-trivial role in turning a US budget surplus into a massive deficit, now being used by Republicans in the US Senate to push for cuts in all kinds of social safety net programs. Because of their firm opposition there will be no going back to it, and when Clinton got it put in place in the early 90s, they totally opposed it, forecasting it would lead to a massive recession. It did not, but they took control of the Congress on such claims.

I note for anybody who thinks that the Clinton code was some sort of "anti-rich" pile of socialistic redistributionism that the top marginal income tax rate in it was still well below what was in place after the first round of Reagan tax cuts in the early 1980s, when that rate was still at 50%. The really sharp cut in the top rate only came in 1986 with the tax simplification.


gordon said...

This post puts me in mind of a post by Lane Kenworthy a bit over a year ago where he shows that US taxation of market incomes is essentially flat if all taxes are taken into account. It is only when transfer payments are included that any progressivity appears.

And that in turn puts me in mind of another Lane Kenworthy post in which he shows (among other things) how really low US taxes are (as a % of GDP) in comparison to other developed countries:

Anonymous said...

The greedy tea party ... No taxes platform.
They took all the tea and then couldn't drink it. Had to throw it into a sea of liquidity.

TheTrucker said...

Barkly Rosser siad:

"Because of their firm opposition there will be no going back to it, and when Clinton got it put in place in the early 90s, they totally opposed it, forecasting it would lead to a massive recession."

The difference between now and then as regards government is that the Senate is controlled by people who will block any attempt to change the automatic increase of taxation. The _real_ Democrats are more than numerous enough to stop legislation that will prevent the expiration of the Bush tax cuts. It is difficult to change things in the Senate. And this is one case where change is not a good thing. The Bush tax cuts _should_ expire as they were already legislated to do. An attempt to retain the cuts is new legislation that can be blocked by a mere 51 votes and there are at least 51 true Democrats in the current Senate. Such legislation can also be vetoed by Obama.

These people do need _your_ help however. The economics profession must support the progressive income tax and if the freepers are allowed to control the discourse then we are all in deep trouble. said...

Thanks for the reminder, Trucker.

Charley said...

I am not so sure of this. My first thought at the time on the Clinton deficit plan was that if a surplus did materialize the economy would go into the dumper. It removed the Keynesian stimulus from the economy. Did this not happen in 2000, or are we supposed to believe that Bush's election sent the economy into a tailspin?

Bruce Webb said...

Charley if the Clinton surplus had been taken by Gore and applied to a major expansion in say government funded health care or backfilling the the known infrastructure gap in such things as renovation of bridges do you think that would represent failure of Keynsianism?

Why assume the default position had to be tax cuts and not a new WPA? The assumption of Bushism was that tax cuts would lead to so much more extra efficient private sector investment choices that any consumption effects by the wealthy would be swamped. The claim that this result was inevitable is just circular. That Bushism didn't work doesn't mean that a $1,5 trillion Keynesian infusion of public spending would have had no effects.