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The Cheap-Shot Kid
Clinton jabs at Bush for cutting taxes. How quick he forgets.


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Larry Kudlow

If things are so bad, then why are they so good?

Consumer confidence, as judged by the Conference Board, is now at a two-year high, boosted by an improving jobs market. The percentage of Americans who consider jobs hard to find is the lowest since October 2002.

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However, according to the speakers at the Democratic National Convention — including former Presidents Clinton and Carter, and former Veep Al Gore — the jobs picture is terrible and confidence is low. Things, they say, couldn’t be worse.

In Boston, Clinton argued against so-called tax cuts for the rich that leave “ordinary citizens to fend for themselves.” He added that “the only test that matters is whether people were better off when we finished than when we started.”

But when Clinton first sat in the Oval Office in 1993, he inherited a strong economic recovery from Papa Bush, with real economic growth registering a
4.1 percent gain. When George W. Bush inherited the economy from Clinton, the U.S. was dropping into recession.

Real gross domestic product declined in the third quarter of 2000 and a stock market downturn followed. Output continued to drop during the first three quarters of 2001, well before any Bush economic policies could have an impact.

No one denies the long prosperity cycle of the 1990s, especially from the end of 1994 through the close of 1999. A partnership between a Republican Congress and a Democratic president produced tight budget controls, work-enhancing welfare reform, lower tax rates on stocks and homes, and free-trade agreements to reduce import taxes on consumers and increase export sales by U.S. businesses.

Actually, the ’90s boom followed on the heels of the prosperity of the 1980s
– launched by former President Ronald Reagan. The popular Californian slashed income-tax rates from 70 percent to 28 percent and corporate rates from 45 percent to 34 percent. He also triggered massive deregulation which transformed and modernized the U.S. economy, opening it up to the information technology revolution that carried productivity and growth to ever higher levels over a two-decade period.

There was a brief recession in 1990-’91 and a relatively mild one in 2000-’01. According to the National Bureau of Economic Research, in 22 years since 1982, the U.S. economy has experienced only six recessionary quarters.

This is a remarkable achievement. It was gained primarily through free-market economic policies that substantially reduced the government’s footprint and significantly increased private enterprise, consumer choice, and business competition.

For Clinton to blame President Bush for a recession the latter inherited from the former is nothing but a cheap shot. Even brief recessions come and go; it’s part of the capitalist nature of things. And for Clinton to blame Bush for cutting taxes on rich people is just plain silly.

It was Clinton who signed a huge capital-gains tax cut for stocks and residential real estate in 1997. It was a terrific pro-growth policy that added torque to the American prosperity. His cap-gains tax cut dropped the marginal rate to 20 percent from 28 percent. Home-sale profits up to $500,000 were made tax-free. Supply-siders like myself — as well as Arthur Laffer, Stephen Moore, and others — praised Clinton for this back then and do so now.

It could easily be argued that Clinton cut taxes for the rich — but that’s a cheap shot these days. Investment taxes like capital gains, or dividends, used to be regarded as a rich person’s worry. But in the past 20 years, stock ownership has skyrocketed to roughly 50 percent of the adult population and homeownership has exploded to nearly 70 percent. The province of rich people has been overthrown by ordinary middle-class folks who are sharing more in our national wealth and prosperity than at any time in American history.

Since 1996, the year before Clinton’s cap-gains tax cut, total home sales in the U.S. have increased 66 percent. The median sales price for homeowners has increased 64 percent. Even with the market collapse of 2000-’02 (a trend Bush inherited), the S&P 500 stock index threw off a total return of 72 percent (price appreciation plus dividends).

Following in Bill Clinton’s footsteps, Bush lowered investment tax rates (on capital gains and investor stock dividends) in order to strengthen incentive rewards to rebuild equity asset values. It worked. The economy is on fire in 2004 with consumer confidence hitting a formidable 106.1 in July. In the history of the consumer-confidence index, any number over 100 is very good news for an incumbent president.

Clinton was undoubtedly playing to the left-liberal crowd in Boston with his cheap-shot attacks on Bush. But he was blowing smoke at the rest of America, which knows better. The electorate will not take it seriously.

— Larry Kudlow, NRO’s Economics Editor, is CEO of Kudlow & Co. and host with Jim Cramer of CNBC’s Kudlow & Cramer.



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