Taxes and Recovery

The national economy has been recovering from the 1990-91 recession since March 1991, but the recovery has not been as strong as it would have been without President Clinton's 1993 federal tax increase. The Washington University Macro Model, a computer simulation of the economy, shows:

• Economic output from 1993 through 1996 was $208 billion less than it would have been without the tax increase — a loss equal to nearly $2,100 per household.

• The gross domestic product would have grown $66 billion more over the period without the increase.

• A total of 1.2 million more jobs would have been created.

• Potential employee wages and salaries would, in today's dollars, have been $112 billion higher over the 1993-1996 period.

• The growth in real personal disposable income over the same period would, in today's dollars, have been $264 billion greater.

Partly due to its ill effects on the economy, the 1993 increase brought in only 49 percent of the new revenues predicted by the Congressional Budget Office.

During the recovery, the gross domestic product has increased less than half as much as the average during three previous long recoveries - during the 1960s, 1970s and 1980s. Industrial production and total employment have increased just over half as much, and unemployment has declined by less than half as much as during the previous expansions.

Source: Scott A. Hodge, William W. Beach et al., "Is There A 'Clinton Crunch'?: How the 1993 Budget Plan Affected the Economy," Backgrounder No. 1078, May 1, 1996, Heritage Foundation, 214 Massachusetts Avenue, NE, Washington, DC 20002, (202) 546-4400.