The Good Old Clinton Budget Days

Kevin Hassett of Bloomberg comments that as we argue over the wisdom of tax cuts, spending is continuing at a record pace.  In the process, he comes down with a case of nostalgia:

Bring Back Clinton -- Just His Spending Habits: Kevin Hassett, Bloomberg: Bring back the Clinton administration. Well, maybe not all of it, but at least its spending habits.  … Spending growth under George W. Bush has been almost four times as high as it was during the same period of Bill Clinton's presidency.  No two-term president in post-war U.S. history has ever presided over a spending binge this monumental in his first six years in office. ... If Bush had vowed when he took office to never spend more than Clinton planned to, then the budget office would be projecting a 10-year surplus of about $3.6 trillion, even assuming that all of the Bush tax cuts are made permanent.  Instead, based on Bush's proposed 2006 budget, we are looking at a 10-year deficit of $2.6 trillion. Tax cuts didn't cause the deficit. At best, they approximately paid for themselves. Spending is the true culprit. … From the education bill to the prescription drug benefit to the war on terror, spending has spun out of control.  If we want to put our fiscal house in order, we need to stop arguing over taxes and bring back the Clinton spending.

I disagree with his demonstration that tax cuts paid for themselves and that therefore the deficit is attributable solely to spending, not to tax cuts.  Nothing he says establishes a causal relationship, only an association, but the remarks on spending are notable. As he clearly shows, the "cut taxes and spend party" lives up to its name.

Comments

[anne]

"If Bush had vowed when he took office to never spend more than Clinton planned to, then the budget office would be projecting a 10-year surplus of about $3.6 trillion, even assuming that all of the Bush tax cuts are made permanent."

I have no idea what this means, which is not unusual for anything I read by Kevin Hassett. But, really, this is a strange sentence.

[dude]

A lot of this data is in David Brock's book, Misstating the State of the Union:
http://www.amazon.com/exec/obidos/tg/detail/-/1888451807

[pgl]

More on Hassett's (ab)use of data over at Angrybear.

[bakho]

Maybe he means that Spending under Clinton dropped to 18.4% of GDP in 2000? and that Bush is currently spending almost 20% of GDP?

However, CBO is still only projecting 16.8% of GDP revenue in 2005, so that is still a 1.6% of GDP deficit gap if Bush were spending 18.4% like Clinton. Since 05 Spending is projected at 19.8% GDP, Bush has a 3% of GDP budget gap or over 4.3% if the SS surplus is put in the lockbox.

As for tax cuts paying for themselves? WTF?? If we spend 20% of GDP, we need 20% of GDP in revenue. If for the next year we cut taxes so revenue is 19% of GDP (about $120 Billion), then GDP would have to expand by 5.3% IF spending remained constant dollars. IF spending increased by 2-3% of GDP, then it would be necessary for the economy to expand by 7-9% in order to balance the budget at the end of the year. To get back to revenue neutral in 5 years, the economy would have to expand over 1% faster than spending over the 5 year period.

While increasing the rate of economic expansion is possible and desirable if the starting point is near zero, expanding the economy at rates above 5% would be asking for a Fed smackdown. The whole concept of supply-side revenue recovery depends on increasing the rate of economic expansion faster than the rate of spending. However, there are times when the economy will be allowed to expand at an increased rate and times when it will not. There are some tax cuts that can stimulate economic expansion and some tax cuts that do not. Bush has proved that with his poorly targeted tax cuts.

BTW- To collect enough revenue to balance the budget of $2.42 Trillion in 05 at the Bush revenue collection rate of 16.8% would require a GDP of $14.4 Trillion which is 18% higher than the 05 GDP of $12.3 Trillion and over 24% higher than the 04 GDP.

[Kyle]

I remember a republican congress lobbying hard to reduce spending. Does no one else remember the GOP fight for a balanced budget? Do we really think that Clinton's health care plan wouldn't have costed a fortune?

Why exactly does Clinton get credit for the state of the budget in the late 90's? No wonder the "republican" congress now does nothing to reign in spending. Would anyone give them credit if they did?

[bakho]

Well Kyle, Clinton ran on a platform of delivering tax cuts to the middle class. However, when faced with severe budget deficits, Clinton abandoned the middle class tax cuts. The 93 Clinton budget passed by one vote and not a single Republican voted for that budget. That budget was the one that increased taxes and raised the necessary revenue to balance the budget once the economy recovered. Those votes for the Clinton budget was used against Democrats by Republicans to gain a majority in Congress.

The Clinton health care plan would not have cost a fortune. Lack of health care and allowing problems to fester and balloon before treating them is costing us a fortune. Clinton vetoed many Congressional budgets to get budgets that were good for America. When Bush was elected, the Republican will was unfettered by the threat of presidential veto. Immediately we see spending ballooning from 18.4% of GDP to 19.8%, huge farm subsidies, an unaffordable prescription drug bill filled with corporate welfare, raiding the SS lockbox to give tax cuts to the wealthy and raising the defense budget from $300 Billion to $500 Billion to pay for corporate welfare for defense contractors.

Little noted savings to government was the low unemployment rate under Clinton. This saved a lot of dollars in unemployment and welfare payments as well as health care payments.

Republicans would get credit for reigning in spending if they were actually doing so. They are not. Spending in 2000 was less than $1.8 Trillion. Spending in 2004 was almost $2.3 Trillion, a $500 Billion increase or 28% increase. IN ONLY FOUR YEARS. Spending under 8 years of Clinton only increased by $400 Billion, about 29%. This is not corrected for inflation which would make Bush look even worse.