NCPA - National Center for Policy Analysis

Effects Of Clinton Tax Increases

May 1, 1996

Millions of workers remain anxious about their economic security, even though inflation, interest rates and unemployment are at relatively low levels. While Americans are certainly better off than they were 30 years ago, there is evidence that they are not doing as well as they would be if President Clinton's 1993 federal tax hike had not been enacted.

Using the Washington University Macro Model, a computer simulation of the economy, researchers concluded that the recovery from the 1990-91 recession has not been as strong as it might have been without the tax increase. Among the effects:

  • Economic output from 1993 through 1996 was $208 billion less than it would have been -- a loss equal to nearly $2,100 per household.
  • The gross domestic product would have grown $66 billion more over the period than it actually did.
  • A total of 1.2 million more jobs would have been created.
  • Potential employee wages and salaries were reduced over the 1993-1996 period by $112 billion in today's dollars.
  • The growth in real personal disposable income over the same period was reduced by $264 million in today's dollars.

The 1993 tax increase was supposed to reduce the budget deficit, but partly due to its ill effects on the economy, it brought in only 49 percent of the new revenues predicted by the Congressional Budget Office.

The economy has been recovering from the 1990-91 recession since March 1991; but the recovery has been weak. For example, studies have shown that real median family income has remained level since 1992, and since the third quarter of 1993 real hourly compensation (which includes benefits as well as pay) has not increased significantly.

During this 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 the number 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.

 

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