A college student who saw my column responding to President Obama's stump speech had some follow-up questions:
You did a good job responding to most of the President's speech, so I'd like to hear what you have to say for the rest of it (I imagine you couldn't write about the entire speech otherwise your article would be too long).
Below are some of the other points the President makes that I find interesting and I'd like your thoughts on (and by thoughts, I'm hoping you'll explain the hole in the logic).
1. The Clinton era took a 'balanced-budget approach' that raised taxes and cut spending which resulted in surpluses, jobs and wealth ... thus we should do it again
2. Government research created the internet which allowed companies to grow and capitalize on them ... some of the best things have come thanks to government (not private) enterprise
3. Taxes were tremendously high in the 60's and yet we had economic growth ... high taxes today won't be that burdensome
I dealt with the Clinton era example in an earlier post here. The growth really got going after a Republican Congress was elected in 1994, and after Clinton signed NAFTA and got tariff reductions though GATT/WTO that Lawrence Summers has called "the largest tax cut in the history of the world." And after 1997, when Clinton signed a bill cutting the top long-term capital gains rate to 20% from 28%. In short, the Clinton-Gingrich era wasn't just about tax increases, but about tax reductions. There was nothing magical about the 20% Clinton capital gains tax rate; what was important was that the direction it was headed was downward.
It is indeed true that the Internet began as a government program. But as Peter Klein points out, who knows what would have been invented by private use of that capital if it hadn't been taxed and used by the government? And the Internet only really took off commercially and creatively after the government reduced its involvement. If the government had retained its control over it, you'd probably be reading this column in a print newspaper, and the Internet would still be used only by the Defense Department as a message-delivery system in case of a nuclear attack.
Growth really took off in the 1960s only after the Kennedy tax cut was passed. Before then, when income tax rates were 91%, growth was anemic. In 1954 "real" GDP growth was negative 0.6%, in 1956 and 1957 it was positive 2% both years, and 1958 it was negative 0.9%, according to the tables at BEA.gov. What growth there was was owing to loopholes and shelters that made it possible to avoid the full 91% tax. The capital gains tax rates were lower then, too.
One other point that relates to nostalgia for either the 1960s or the 1990s: while the left often talks about wanting to bring back the tax rates of those eras, they almost never talk about wanting to bring back the spending levels of those eras on a nominal, or even an inflation-adjusted basis. If the Clinton years were so wonderful, how about going back to Clinton-era spending levels, which in nominal dollars were $1.789 trillion in 2000, less than half the $3.8 trillion President Obama budgeted for 2011? Do we really need a government now that is twice as expensive as the one we had in 2000?