Annapolis Institute Overview


Clinton selling us an economic clunker

by Phil Burgess, Unabridged from the Rocky Mountain News, March 2, 1993

As Congress and the public look under the hood of the Clinton economic plan, they’re finding a clunker. Despite initial public optimism about the plan, the University of Michigan’s index of consumer sentiment showed increased public anxiety about the economy’s long-range prospects following the President’s speech.

  • The Clinton Plan is a familiar tax and spend plan. For every $1.00 of spending cuts, there are $2.23 of tax increases. The administration also wants a $30 billion increase in next year’s deficit to fund the so-called “stimulus package.” This increase in the deficit will help the administration take credit for an expansion already underway — including seven consecutive quarters of economic growth. Last quarter, the economy grew 4.8%, the highest in the industrialized world. Some recession.
  • The Clinton Plan will kill jobs and slow growth. When the Clinton economic plan was run through the DRI/McGraw Hill econometric model of the US economy last week, they found the following effects: no new growth this year and a three-tenths of 1% reduction in next year’s economic growth, including 250,000 fewer jobs.
  • The Clinton tax plan is a disaster for small business. It is being opposed by many small business groups. Reason: Small business job creation will be undermined by the Clinton Plan’s new regulations (e.g., parental leave for companies over 50 employees) and new taxes, especially income tax increases.

According to economist Michael Roush of the National Federal of Independent Business, opposition is not a “don’t tax me” argument. It’s a capital formation argument having to do with the entrepreneurial character of the American economy.

Specifically, 80% of small business owners pay only individual income taxes (including S-corporations). So, the “personal” income tax increase from 31% to 36% strikes at the heart of small business capital formation. For example, a small business owner earning $250,000 a year will pay at least $15,000 more in taxes. A very successful small business owner making $500,000 per year will have a 32% tax increase. So, the government spending will displace the investments of successful business owners who create jobs by responding to market forces and customer needs.

  • The investment tax credit is a shell game. The tax plan gives business $28.8 billion through the ITC and takes back $30.5 billion through higher corporate taxes. What the ITC does do is help manufacturing companies a lot more than others. This is just the beginning of an industrial policy to shape our economy by government direction rather than market forces.
  • The BTU tax is a time bomb for the national economy. The BTU tax is a carbon tax in disguise. For example, Clinton’s tax of 25.7 cents per million BTUs will add a tax of $4.39 to a ton of Wyoming’s Southern Powder River Basin coal, which had a market price last year of about $4.45. That’s a whopping 98% tax per ton. Result: the BTU tax will drive massive and costly fuel switching from coal to natural gas.

Fuel switching from coal (which now provides 57% of the nation’s electricity) to natural gas will raise utility bills through the ceiling, including the cost of electricity for industry — killing jobs, slowing growth and reducing our international competitiveness.

Conclusion: The Clinton administration is not pursuing a pro-growth, pro-opportunity economic policy. It’s the same old thing: spend now while foreigners finance our profligacy and our kids pay the price. It’s not a pretty sight.

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