Hil­lary Clin­ton over­reaches with as­ser­tion that Democrats own nar­ra­tive on eco­nomic suc­cess

The Washington Post Sunday - - POLITICS & THE NATION - The Fact Checker

“There’s just a pat­tern here, where the other side con­tin­ues to use the same old tired poli­cies. They don’t work, and then Demo­crat pres­i­dents have to come in and fix what was bro­ken. . . . If you look at the ev­i­dence at the end of Bill Clin­ton’s two terms, we had the long­est peace­time ex­pan­sion in Amer­i­can history, with 22 mil­lion new jobs, a bal­anced bud­get and a sur­plus that would have paid off our na­tional debt had they not been so rudely in­ter­rupted by the next ad­min­is­tra­tion.”

— Hil­lary Rod­ham Clin­ton, re­marks in Hanover, N.H., July 3, 2015

Both Democrats and Repub­li­cans have their own nar­ra­tives of U.S. eco­nomic history.

The Repub­li­can nar­ra­tive of­ten fea­tures Ron­ald Rea­gan and how he sup­pos­edly res­cued the econ­omy from the bad de­ci­sions of Jimmy Carter with an elixir of tax and spend­ing cuts. Hil­lary Clin­ton, in a re­cent speech, of­fers a ver­sion of the Demo­cratic nar­ra­tive — that Bill Clin­ton bal­anced the bud­get and left be­hind a huge sur­plus that was squan­dered by his suc­ces­sor, Ge­orge W. Bush.

But does this nar­ra­tive make eco­nomic sense?

The Facts Reg­u­lar read­ers know that The Fact Checker frowns on claims that sug­gest a pres­i­dent is re­spon­si­ble for ev­ery good or bad thing that hap­pens to an econ­omy on his watch. The U.S. econ­omy is huge — and de­ci­sions made long ago con­tinue to re­ver­ber­ate in the fu­ture.

Thus, by draw­ing such a bright line be­tween Demo­cratic pres­i­dents and Repub­li­cans, Clin­ton runs the risk of en­gag­ing in eco­nomic sophism.

The Clin­ton cam­paign of­fered David Kamin, a cam­paign ad­viser and New York Univer­sity law pro­fes­sor, to make its case. Es­sen­tially, he ar­gued that the boom in the 1990s was the di­rect re­sult of poli­cies ad­vanced by Bill Clin­ton, in par­tic­u­lar a 1993 bud­get-deficit plan that at­tracted no Repub­li­can votes. More­over, he said the shift from bud­get sur­pluses to bud­get deficits in the 2000s was not in­evitable and was the di­rect re­sult of pol­icy choices made by the Ge­orge W. Bush ad­min­is­tra­tion.

Pres­i­dent Clin­ton’s 1993 deficit plan, which set a tar­get of cut­ting the deficit by $496 bil­lion over five years, cer­tainly was a po­lit­i­cal and eco­nomic gam­ble. Hefty tax in­creases on the top 2 per­cent of taxpayers were an im­por­tant el­e­ment, but Clin­ton also in­cluded a ma­jor ex­pan­sion of a tax credit for the work­ing poor.

Repub­li­cans pre­dicted gloom and doom if Clin­ton’s plan was passed into law, but they turned out to be wrong. But it’s im­por­tant to re­call that Clin­ton’s plan was never in­tended to achieve a bal­anced bud­get. Af­ter the bill’s pas­sage, the Con­gres­sional Bud­get Of­fice es­ti­mated that the deficit would de­cline mod­estly — from $290 bil­lion in 1992 to $200 bil­lion in 1998.

The Clin­ton bud­get plan was ac­tu­ally slightly smaller, on an in­fla­tion-ad­justed ba­sis, than the bi­par­ti­san deficit-re­duc­tion pack­age signed into law in 1990 by Ge­orge H.W. Bush. Both bud­get deals in­cluded a mech­a­nism known as “PAYGO” — pay as you go — which pre­vented law­mak­ers from boost­ing spend­ing with­out pay­ing for it with ad­di­tional rev­enue.

Fast-for­ward to 1995. The Democrats had lost con­trol of the House and the Se­nate, largely be­cause of bruis­ing bud­get bat­tles. Clin­ton’s fis­cal 1996 bud­get pro­posed $200 bil­lion deficits ev­ery year for the next five years.

But Repub­li­cans, who were now in charge of Congress, set the goal of achiev­ing a bal­anced bud­get. Af­ter re­sist­ing for a few months, Clin­ton shocked many fel­low Democrats by an­nounc­ing that he, too, would em­brace the idea of a bal­anced bud­get. In other words, the pol­icy de­bate in Washington sub­stan­tially shifted be­cause of the GOP takeover of Congress and its em­brace of a bal­anced-bud­get goal.

Mean­while, there were eco­nomic forces that had lit­tle to do with ei­ther Democrats or Repub­li­cans; Clin­ton was lucky to have be­come pres­i­dent just as a revo­lu­tion in com­puter and in­for­ma­tion tech­nolo­gies was un­leashed. A gusher of tax rev­enue emerged, pri­mar­ily from cap­i­tal-gains taxes, be­cause of the run-up in the stock mar­ket, as well as taxes paid on stock op­tions earned by tech­nol­ogy ex­ec­u­tives.

From 1992 to 1997, the CBO es­ti­mated, tax rev­enue in­creased at an an­nual av­er­age of 7.7 per­cent in nom­i­nal terms, or about 2.4 per­cent­age points faster than the growth of the gross do­mes­tic prod­uct, the broad­est mea­sure of the econ­omy. Be­tween 1994 and 1999, re­al­ized cap­i­tal gains nearly quadru­pled, the CBO con­cluded, with taxes on those gains ac­count­ing for about 30 per­cent of the in­creased growth of in­di­vid­ual in­come tax li­a­bil­i­ties rel­a­tive to the growth of GDP.

There were other fac­tors as well, such as lower-thanex­pected health costs that re­duced an ex­pected drain on the bud­get. Ge­orge H.W. Bush, Clin­ton’s pre­de­ces­sor, also had kicked in mo­tion a huge de­cline in de­fense spend­ing (which Clin­ton ac­cel­er­ated) and had over­seen a painful restruc­tur­ing of the bank­ing in­dus­try. Even a po­ten­tial shock, such as the Asian fi­nan­cial cri­sis in 1997, brought the sil­ver lin­ing of lower oil prices that bol­stered the U.S. econ­omy.

In the 2000 cam­paign, both Ge­orge W. Bush and Demo­crat Al Gore had grand plans for tap­ping what was then pre­dicted to be a $2.2 tril­lion sur­plus over 10 years. The left-lean­ing Cen­ter on Bud­get and Pol­icy Pri­or­i­ties in 2000 pro­duced an anal­y­sis that con­cluded that Bush’s pro­posed poli­cies would tap $1.9 tril­lion of the sur­plus, while Gore had pro­posed us­ing $1.4 tril­lion.

Bush, of course, touted a $1.3 tril­lion tax cut, but Gore had coun­tered with a $500 bil­lion tax cut — and had planned to in­crease spend­ing. In the­ory, Gore had a plan to even­tu­ally elim­i­nate the na­tional debt, by re­serv­ing about 35 per­cent of the an­tic­i­pated sur­plus to buy back out­stand­ing bonds. But the CBPP warned that both Bush and Gore had prob­a­bly un­der­es­ti­mated the costs of their var­i­ous ini­tia­tives.

As things turned out, sur­pluses dis­ap­peared al­most as quickly as they had emerged, largely be­cause of eco­nomic rea­sons. A weak­ened econ­omy, the pop­ping of the bub­ble in tech stocks and other fac­tors meant that hun­dreds of bil­lions of dol­lars in ex­pected rev­enue had turned out to be ephemeral. In just a year, cap­i­tal gains re­turns fell 20 per­cent; in­come growth from stock op­tions fell as much as 40 per­cent, the CBO es­ti­mated.

The econ­omy also suf­fered a ma­jor shock with the Sept. 11 ter­ror­ist at­tacks in 2001 — and, of course, the na­tion em­barked on wars in Afghanistan and then Iraq. The PAYGO spend­ing re­straints ex­pired, and Bush and Congress funded the wars and home­land se­cu­rity im­prove­ments, and a Medi­care pre­scrip­tion drug plan, through deficit fi­nanc­ing.

Kamin points to the fact that by 2003, it was very clear that the sur­pluses were gone, and yet Bush per­sisted on ad­di­tional tax cuts and deficit-fi­nanced war fund­ing, thus dig­ging the fis­cal hole even deeper.

By con­trast, Kamin said, Bill Clin­ton main­tained that fis­cally pru­dent course by ve­to­ing GOP ef­forts to pass a tax cut and in­stead com­mit­ted the na­tion to fully pay­ing down the na­tional debt in his last bud­get plan.

Yet this doc­u­ment was is­sued just one month be­fore tech stocks reached their peak — and Ge­orge W. Bush in­her­ited the eco­nomic hang­over caused by the end of the dot-com party. This is another ex­am­ple of why it is fool­hardy to try to draw bright lines be­tween pres­i­den­cies.

In 2012, the CBO is­sued a fi­nal doc­u­ment de­mon­strat­ing that one-third of the eva­po­ra­tion of the sur­pluses can be at­trib­uted to CBO’s fore­cast­ing er­rors.

Thus, much of the money that Gore had said he would have saved for pay­ing down the debt, af­ter pay­ing for all of his other projects, would not have been there. The num­bers do not add up for Hil­lary Clin­ton’s claim that there would have been enough of a sur­plus to pay down the na­tional debt if a Repub­li­can had not won the pres­i­dency in 2000.

The Pinocchio Test It is cer­tainly fair game for Hil­lary Clin­ton to com­pare the fis­cal record of the Clin­ton ad­min­is­tra­tion with the record of the Ge­orge W. Bush ad­min­is­tra­tion. But she goes too far to sug­gest that a Demo­crat would have pre­served the sur­pluses and paid down the na­tional debt, when a good chunk of that sup­posed sur­plus was based on fore­cast­ing er­ror.

We can’t go back in time, but nei­ther can Hil­lary Clin­ton. Democrats and Repub­li­cans — and the stock mar­ket — all share some credit for the bal­anced bud­gets of the 1990s. She should ac­knowl­edge that. More­over, the prospect of pay­ing down the na­tional debt was prob­a­bly just an il­lu­sion — and would never have been ac­com­plished no mat­ter who was pres­i­dent.

The Pinocchio rat­ing is dif­fi­cult, given that the is­sue in­volves some his­tor­i­cal spec­u­la­tion, so we will keep it at Two.


Pres­i­dent Bill Clin­ton dis­cusses the bud­get sur­plus dur­ing an ap­pear­ance in the WhiteHouse Rose Gar­den in Septem­ber 2000.

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