Exploding the myths of Clintonomics:
The bull market took off precisely when then-Fed Chairman Alan Greenspan took his foot off the brakes and hit the gas in 1995. It was also then that Republicans took control of Congress — further blunting the effects of the Clinton tax torpedo that had taken effect the previous year.
Clinton also benefitted from innovations long in the making, including the Pentium chip released in March 1993 and Microsoft’s Windows program released in August 1995. These together made the Internet boom possible.
As for the budget surpluses, they came as a complete surprise to Clinton economic forecasters, whose static models only predicted their tax hikes on the rich would narrow the budget gap, not get it into the black.
Their “deficit-reduction plan” didn’t create the surpluses at all. They were a direct result of a tidal wave of capital-gains revenues generated by the GOP-led stock boom.
Relieved that Washington would no longer threaten to take over 14% of the economy by socializing medicine or raise taxes even higher, the market took off like a shot at that point. And capital gains tax receipts exploded, flooding federal coffers.
Clinton’s own long-term budgets predicted no surpluses of any kind during his administration and beyond.
Bill Clinton never had a plan to end deficits. The Republicans and economic circumstances did it for him. But I’m sure that this myth that Bill Clinton balanced the budget will prevail in the minds of the media and Democrats, just as the false myth that Roosevelt, and not the war, got us out of the Depression continues to prevail many decades later. They have to rewrite history to justify their continued plunder. And of course, the near-term danger is that President-Elect Obama and the Congressional majority will use this mistaken history as a justification for tax hikes in a recession, which could be economically ruinous.