The Unbearable Costs Of ClintonomicsPaul Craig Roberts
When Senator Herb Kohl (D-Wis.) expressed concerns about the political implications of the Clinton Administration's cavalier attitude toward the taxpayer, Hillary Rodham Clinton replied that social needs had to be met and that the tax question was one of morality, not politics. That's putting a fine gloss on the plunder that is in store for U.S. taxpayers.
Never before in history has such an extraordinary array of new taxes been planned for the American people. There are higher tax rates on personal, corporate, and Social Security income, a comprehensive energy tax that we will pay every time we use energy or purchase a good or service, a massive addition to the payroll tax, and an increase in the marriage penalty. These taxes would have a devastating impact on incentives, disposable income, employment, and families. Yet little attention has been paid to the economic and social effects of this punitive tax package.
MISSING SCREAMS. Instead, President Clinton and his henchmen, such as the reprieved suspect in the House Post Office scandal, Ways & Means Chairman Dan Rostenkowski (D-Ill.), are preoccupied with the mechanics of passing the tax bill. Rosty has plied 50 large corporations with tax concessions and enlisted them as cheerleaders for a tax package that will wreck the U.S. economy. Clinton has promised that he will put the several hundred billion dollars siphoned out of aggregate demand into a "deficit-reduction trust fund."
This powerful deflationary imagery of the Treasury draining the economy of purchasing power while it sinks into recession would, in times past, have brought screaming protests from liberal economists. How, they would have demanded to know, could such large sums be drained from consumer spending, personal savings, and corporate revenues and still have the same quantity of goods and services sold, people employed, and business investment?
When puzzled reporters ask this question, Administration spokespersons respond with denial of reality. On Meet the Press recently, Treasury Secretary Lloyd Bentsen implied that the tooth fairy was going to pay the tax when he claimed that the tax plan is designed to "reduce the deficit substantially" without costing taxpayers anything: "The first year, for example, it's going to cost the average family making $40,000 a year $1 a month."
Clintonomics is a textbook example of economic mismanagement. The proposal to fund a federal health-care plan with a payroll tax in lieu of employer-paid insurance premiums would approximately double the employment tax and raise the marginal tax rate on much of the middle class to 60% or 65% (combined state and federal income and payroll taxes). People who only get to keep $3.50 or $4 of every additional $10 earned are unlikely to be well-motivated or big savers.
The energy tax is a double whammy. It will raise costs and prices while draining consumers of disposable income. Moreover, the energy tax enters directly into the inflation rate, and the plan to phase the tax in over four years means four annual boosts in the price level--which will set off alarm bells at the Federal Reserve. It is absurd to promise lower interest rates from a tax that is going to drive up prices.
The increase in personal, corporate, and Social Security income taxes will dramatically reduce aftertax earnings from savings and investments. Today's low interest rates cannot fall enough to cut investment costs as much as the higher taxes reduce investment income.
The plan to tax 80% of Social Security benefits for single/married retirement income above $25,000/$32,000 will cause people approaching these thresholds to reduce their retirement savings in order to avoid the tax. What's the point of saving if the reward is higher taxation on retirement income?
Whether viewed from the demand side or the supply side, the Clinton tax plan is a death blow to economic activity. The biggest gimmick in Clinton's plan is not his "deficit-reduction trust fund" (which, like the Social Security trust fund, will contain nothing but government IOUs), but his assumption that these taxes won't hurt the economy.
BURDENS. Clinton's tax hike will generate very few, if any, revenues. The plan's main effect will be to shrink the private sector relative to the government sector. Government and its deficit will become greater burdens as a shriveled private economy labors under stark disincentives and diminished demand.
With Europe and Japan in recession, Clintonomics is a prescription for rising unemployment that will generate more protectionist pressures. As economic frictions rise between the industrial democracies, foreign policy cohesion will further unravel. The diplomatic costs alone of the tax increase are unbearable.
The ideologues in the Clinton Administration associate government with morality and are determined to have more of it. Sweden's Ian Wachtmeister, who heads the New Democracy Party, says the 20th century's experience with big government has been lost on the Clintonistas: "We are moving away from the welfare state. On your side, you are moving into it, and you risk destroying your country." And the world economy.