The Myth of High Tax Prosperity

In his quest to raise taxes on Americans, President Obama falsely implies that the prosperity enjoyed under President Bill Clinton in the 1990s was the direct result of Clinton’s tax hikes while failing to tell the rest of the story. 

Still in campaign mode, President Obama has launched a full media blitz to drum up support for his plan to raise taxes. All of his usual campaign tactics are on display such as demonizing wealth through class warfare attacks, socialist demagoguery demonizing business and capitalism as evil and oppressive to the masses, and blaming Republicans as obstructionist for not acting to stop the political economic catastrophe he engineered to force their hand.

One of President Obama’s favorite lines at campaign stops is to claim that America enjoyed prosperity under Bill Clinton even though tax rates were higher back then than they are now. He leaves listeners with the impression that tax rates 1) have nothing to do with economic growth and aren’t the drag on the economy that conservatives claim, and 2) that economic prosperity would return if we would only raise tax rates back up to the levels under Bill Clinton.

However, President Obama conveniently leaves a few points out of his fawning praise for higher tax rates. First, unlike President Obama, Bill Clinton was a centrist Democrat who believed in capitalism and avoided demonizing wealth and business. Clinton sought to protect and promote business expansion as the engine that would pay for his spending priorities. President Obama has engaged in the most egregious campaign of class warfare against wealth, business, and capitalism to stoke the fires of resentment among his base of supporters and deflect attention away from his economic policy failures.

Second, Clinton avoided over regulating business by keeping various government regulatory agencies in check. Clinton realized that government over regulation of business would create a climate of uncertainty that would mire businesses in indecision and drag the economy into recession. In contrast, President Obama has unleashed government regulatory agencies such as the EPA and opened the floodgates to massive business regulation. In response, business leaders have been left with no ability to forecast future regulations and their impact on business decisions. Predictably, business indecision has led to a prolonged economic recession that is fast becoming a second Great Depression. In fact, the actions and responses of this modern depression mirror those of the Great Depression of the 1930s.

The prosperity America enjoyed under Bill Clinton in the 1990s was the direct result of forces unleashed by President Reagan in the 1980s. In contrast to the Stagflation of the 1970s exacerbated by President Carter’s mishandling of the economy, Reagan’s policies of low taxes and less government interference unleashed a tsunami of economic activity that continued long past his tenure in the Oval Office. Bill Clinton was eventually able to raise taxes, but he began his tenure thwarted in his attempt to pass an unnecessary economic stimulus plan by a reluctant congress, and his attempt to impose universal health care was soundly rejected by a skeptical public. After Republicans retook the House in the 1994 midterm election, Clinton smartly pivoted towards a more centrist approach and tempered his proclivity towards big government solutions even famously declaring “The era of big government is over.”

The American economy prospered under Clinton in spite of his tax increases and not because of them. President Obama would have everyone believe that Clinton’s first term tax increases were the cause of this economic prosperity and that we could escape our economic malaise if we would only return to the sensible tax policies of the Clinton era. Notice that he only mentions a return to the tax policies of that era and not the regulatory policies. Obama has absolutely no intention of muzzling his regulatory agencies, and this is one reason why he can’t deliver on his promises to restore the economy. Another is the fact that higher taxes are a drag on economic activity leaving less capital available for business expansion.

Safely ensconced in his second term, President Obama is beyond the reach of angry voters when his promises are discovered to be empty. His only worry may be his legacy, but he also knows that the liberal media who has so protected and nourished his career path will also be the ones who define his legacy while liberal academia will be the caretakers of scholarly study on his presidency. He has little to fear from these supporters and fellow travelers of the socialist big government path. So careful was their definition and protection of FDR’s legacy that the myths surrounding his handling of the Great Depression continue to be believed despite the overwhelming evidence to the contrary.

Many conservatives make the mistake of believing that President Obama has no grasp of economics or business knowledge in assessing his policies. They fail to realize that Obama approaches decisions from a political point of view instead of a practical economic viewpoint. Yes, it makes no economic sense to confuse business leaders with uncertainty of government policies and regulations that mire the economy in recession, unless your goal is to create class envy and resentment while you lay the blame for the recession on the opposition.

Viewed from the political angle, President Obama’s policies make perfect sense. Create a crisis, show astonishment at this crisis, rail against evil conservative policies you paint as responsible for this crisis, then force congress to pass massive and unnecessary regulation to deal with the crisis that enlarges government and creates more power for you while touting how much you care for and helped ordinary Americans. That is the secular progressive handbook in a nutshell.

Common sense informs us that raising taxes does not lead to prosperity, just as overspending does not lead to prosperity. Many Americans are resisting their common sense because they want to believe that these fairytales are possible. When the collapse comes and the pain sets in, it will be far too late to mitigate the level of this pain. Make no mistake, the collapse is coming and it will be painful. Common sense should tell us that the misery being suffered by Greece is what’s in store for our future, but there are so many who want to believe in the fairytale.

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