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Clinton, Bush Prove Cutting Capital Gains Rate Works

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Former President Clinton has been campaigning around the country, bashing the Republicans and GOP tax cut ideas, and urging Democrats to turn out and vote against them.


Invariably, Clinton reminds Democrats how great the economy was under his fiscal policies. But there is one Republican policy he signed into law (besides welfare reform) that he never says anything about: When he cut the capital gains tax rate that released a burst of venture capital and sent the stock market and the economy soaring on a wave of high-tech investment, creating jobs and boosting tax revenues that helped balance the budget.

He leaves this critical policy shift out of his campaign speeches because he knows Democrats don't want to hear about Republican-style tax-rate cuts that might help someone get a job. But it is the chief reason why the Clinton economy took off in the last half of his scandal-plagued presidency and has given him bragging rights ever since.

The story that Clinton and the Democrats don't want to bring up in the midst of Obama's failed economic stimulus agenda is important, because it clearly shows tax-cut incentives not only worked then, but can work again if only Obama would drop his ideological opposition to them.

In 1993, Clinton raised taxes on upper-income Americans, boosting the top rate to nearly 40 percent. But the higher tax rates didn't boost government revenues as Democrats and the administration hoped, despite the economy coming out of a short and shallow recession.


"The tax increases added very little to Treasury receipts despite their magnitude. Reports from the Congressional Budget Office and the Office of Management and Budget, and the Internal Revenue Service all agree," high-tech analyst Jerry Shenk writes on the American Thinker website.

Clinton boasts about his budget surpluses, but they did not occur until after the Republican-run Congress sent him a deficit-reducing bill in 1997 that he signed reluctantly. Among its tax cut provisions, it cut the capital gains rate from 28 percent to 20 percent.

"The 1997 rate reduction on capital gains unleashed the economy, causing capital investment to more than triple by 1998 and double again in 1999. Treasury receipts for this category of tax obligation increased dramatically," Shenk found.

"Without tax relief and the internet/communications revolution, the second Clinton term would likely have seen tax revenues decline in a lagging economy," he said.

But in his 2008 campaign, Obama made it clear that he opposed the lower 15 percent capital gains tax rate that Congress passed in 2003 under the Bush administration, and said he intended to raise it to 25 percent or more. He argued that the government could not afford to give tax breaks to wealthy investors and Wall Street, and that tax cuts were responsible for the mess we were in.


But during the presidential debate, Obama's claim that the federal government would lose money from lower capital gains rates was challenged by then-ABC News anchor Charlie Gibson, who said such capgains cuts have always brought more money into the Treasury as a result of increased investments and higher economic growth.

Obama has apparently learned nothing from Clinton's second-term capital-gains tax cut, or is ignorant of it. His advisers are among those who still insist capgains tax cuts will worsen the deficit.

In 2003, Democrats claimed that, too, when they fiercely fought George W. Bush's tax cuts for capital gains and dividends. But in its 2007 report, CBO found that capital gains and dividends tax revenue had climbed much higher than their original forecasts, producing $51 billion in 2003, $72 billion in 2004, $97 billion in 2005, and $110 billion in 2006. Charlie Gibson was right and Obama was wrong.

What all of this shows is that cutting tax rates boosts economic activity, risk taking, which ultimately leads to more jobs and higher tax revenue. That's what happened under Clinton and under Bush when the Dow rose to over 14,000 in 2007 and unemployment was a low 4.6 percent.

"Incentives are what matter," economic analyst Brian S. Wesbury said in an analysis of the Clinton and Bush tax cuts in 2003. Clinton's capital gains rate cuts "meant that the after-tax return from a $100 capital gain increased from $72 to $80 -- an 11 percent increase.


"This 11 percent increase in incentives led to the late 1990s boom in stock prices, venture capital investment and innovation," Wesbury said.

But, sadly, the reason for the late Clinton boom years remains the best-kept secret among the Democrats' political base in this midterm election. In Obama's confused, class-warfare world, Wall Street, risk-taking venture capital, wealth creation, capital gains and tax rate cuts are dirty words in his party's lexicon.

Clinton dares not breathe a word about his capgains tax rate cuts at party rallies when extolling his record on the economy. Obama, an accomplice in this little conspiracy, ridicules GOP tax cuts and insists they've never worked and the country can't afford them.

Charlie Gibson and Bill Clinton know better. Obama is in need of some serious tutorial training in Economics 101.


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