Can Republicans Explain Why Higher Taxes Are Bad?

The Clinton economic boom back in the 1990s muddies the case for keeping the Bush cuts.

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The Republican presidential candidates seem to be assuming that their Democratic rivals are going to push for repeal of all the Bush tax cuts. That's why they are always talking about a potential $2 trillion-plus tax hike when those reductions expire at the end of 2010. More likely, Democrats will call for only the tax cuts on wealthier Americans to be repealed—such as raising the top rate from 35 percent to 40 percent—and for keeping most of the middle-class tax cuts, including rate reductions and a higher child tax credit.

So Republicans will have to explain why a tax hike on "the rich" is a bad idea that will hurt average Americans. Making that task more difficult is the fact that many Americans probably associate the 1990s with an economic boom despite—maybe even because of—the Clinton tax hike in 1993. I have yet to hear any GOP contender really address this issue. I gave Rudy Giuliani a chance in our recent chat, but I'm not sure his answer did the trick. Here is how Giuliani economic adviser Steve Forbes, the magazine publisher and former presidential candidate, tackled the issue in an interview with me last weekend:

Well, if you actually look at what happened in '93, the Clinton tax increase actually hurt the economy, slowed it down. In late '92, the economy started to grow 4 or 5 percent in real terms, not enough to save the elder President Bush, but the economy started to make the recovery from the '90-'91 recession. Clinton comes into office, raises taxes, growth rates plummet, and it's not until 1995 that the economy gets back on track again and also played a key part in Republicans taking control of Congress in 1994, which also set the stage for the boom in the latter part of the decade. That Congress cut capital-gains taxes.

Of course, Democrats are going to have to explain how they will pay for keeping the Bush tax cuts after 2010. Even if a Democratic president and Congress let them all expire, none of the new tax revenue—assuming there is any and the economy doesn't tumble into a recession—could be spent on new programs like healthcare under current congressional budget rules.

So that means raising taxes even beyond what they were when Bush took office or cutting spending somewhere else. Even the left-leaning group Citizens for Tax Justice admits that "repealing the Bush tax cuts does not create much new revenue compared to the budget baseline that Congress already uses, which assumes the Bush tax cuts will be allowed to expire at the end of 2010." Both Republicans and Democrats have some explaining to do.


TAGS:
federal taxes
Forbes, Steve
Republican Party
2008 presidential election

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