Notably, he warned against imposing new government regulations, "particularly in a fragile time [when employers] don't like to have too many things changing at once," he said. "A business can't do five things at once and decide whether to get back into the investment business after it's slow."
Obama rejects Clinton's advice on both grounds. His nearly $500 billion jobs bill calls for raising taxes on higher income Americans, investors, corporations and small businesses. He's made no effort to roll back the massive business, healthcare and financial regulatory apparatus he put in place in his first two years.
However, there's one economic initiative Clinton took in his second term that had a lot to do with his success on the economy but which he never mentions. One that the president would do well to study.
In 1997, he signed a Republican tax-relief and deficit-reduction bill that reduced the top capital gains tax rate from 28 percent to 20 percent; created tax free Roth IRAs that encouraged millions of Americans to save and invest for their retirement tax; and added a new $500 child tax credit, among other pro-growth initiatives.
Until that time, after a short and shallow recession, the economy was doing just okay, growing at a modest annual rate of 3.2 percent in inflation-adjusted terms between 1993 and 1996. A solid, "but not spectacular performance in the overall economy," says chief Heritage Foundation economist J. D. Foster.
But it was the capital gains tax cut that really lifted the Clinton economy into the stratosphere, unlocking venture capital investment that is the life blood of new enterprises and new jobs.
"By 1998, the first full year in which the lower capital gains rates were in effect, venture capital activity reached almost $28 billion, more than a three-fold increase over 1995 levels, and by 1999, it had doubled again," Foster said in an economic analysis.
"The explosion in venture capital activity cannot be credited entirely to the cut in capital gains tax rates," he acknowledges, because it came at a time when the high tech Internet-based economy was exploding with start-ups and the jobs that came with it.
Nonetheless, "the rapid development and application of these new technologies could not have occurred at such a rapid clip absent the enormous investment flows made possible largely by the reduction in the capital gains tax rate," Foster said.
The economy during this 1997 to 2000 tax cut period averaged 4.2 percent real growth per year, a percentage point higher than the expansion that followed Clinton's 1993 tax increases. Employment exploded with another 11.5 million jobs and real wages rose by 6.5 percent, far stronger than the 0.8 percent growth in his first term.
The data offers persuasive proof that Clinton's tax hikes slowed the economy's full potential, while his '97 tax cuts accelerated real growth in his second term.
Clinton never talks about the capital gains tax cuts he signed because that's not what his tax-happy party wants to hear. But there is a lesson here that Congress can learn from.
The anemic, jobless Obama economy is in desperate need of a sustained transfusion of venture capital investment. Clinton proved that cutting the capital gains tax rate produces new businesses and enlarges existing ones which in turn creates more jobs. It's too bad that he doesn't have the courage to come forward and publicly explain this to his party and his president.
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