In 1993, Democrats controlled both the legislative and executive branches, and they used their power that year to raise taxes on the top 1.2 percent of income-earners, creating a new top marginal rate of 39.6 percent. When that budget cleared the House (on a 218-216 vote in which every Republican voted no), the GOP whip issued a bold and frightening prediction:
“I believe this will lead to a recession next year,” Newt Gingrich said. “This is the Democrat machine’s recession. And each one of them will be held personally accountable.”
He still hasn’t come to terms with how wrong he was, and neither has his party. Nearly 20 years after Gingrich uttered those words, the debate in Washington carries echoes of that ’93 fight, with Barack Obama and congressional Democrats demanding a return to the Clinton rates for the top two percent of income-earners and with Republicans, who have not provided a single vote for a tax increase in all of the intervening years, doing their best to resist.
On Sunday, Gingrich appeared on “Meet the Press” and was grilled by fellow guest Lawrence O’Donnell about his ’93 prophecy. O’Donnell, who now hosts a show on MSNBC (full disclosure: the same channel that employs me), worked as a Democratic staffer on the Senate Finance Committee when the ’93 budget was cobbled together. He started by pointing out that the current House Speaker, John Boehner, is sounding the same alarm the Gingrich and his allies sounded 19 years ago:
It is, by the way, not an original thought. Who said this? The tax increase will kill jobs and lead to a recession, and the recession will force people out of work and onto unemployment and actually increase the deficit? That’s Newt Gingrich in 1993 on the Clinton tax increase. And those of us who were working on the other side of that tax increase, Newt, have been waiting for your apology for 20 years for being completely wrong about that.
MR. GINGRICH: Well, I don’t agree with you.
MR. O’DONNELL: Well with the-- but the economy soared, no one lost a job…
MR. GINGRICH: Baloney.
MR. O’DONNELL:…because of that tax increase.
MR. GINGRICH: Baloney. Baloney.
MR. O’DONNELL: There was no recession. You said there would be a recession.
MR. GINGRICH: You now see the case.
MR. O’DONNELL: There was no recession.
MR. GINGRICH: The fact is if you look at all the indicators the day I was elected speaker, virtually all the economic growth occurs after Republicans take control, virtually all the increase in the stock-- the matter of fact, all the increase in the stock market is after Republicans take control.
MR. O’DONNELL: You did not reduce the rates, Newt?
MR. GINGRICH: And-- and when we balanced-- wait a second.
MR. O’DONNELL: You said the rates would cause a recession.
MR. GINGRICH: When we balanced the-- when we balanced the budget, we balanced the budget with a tax cut, not a tax-- four consecutive balanced budgets with a tax cut, not a tax increase.
MR. O’DONNELL: A tiny tax cut compared to the biggest tax increase in history which is what Bill Clinton did. You didn’t dismantle it.
This really is the definition of revisionist history.
First, Gingrich ignores the very specific prediction he and his fellow Republicans made back in the summer of 1993 – that the Clinton tax hike would have an immediate and devastating impact on the economy. There was talk of a second recession (the country was just climbing out of one when Clinton’s budget went through), millions of lost jobs, and a worsening of the deficit problem. At the same press conference where Gingrich warned of a recession, John Kasich, who was then the House GOP’s point man on the budget, said that he felt “bad for the people who really are the working people in this country, people in my family, who are going to get the penalties from people who don’t want to invest more, take any more risks. They’re going to lose their jobs, and that’s the tragedy of this program.”
But nothing like this ever happened. When the Clinton budget passed, the unemployment rate was 7 percent. A year later, in the summer of 1994, it had fallen to 5.9 percent – part of the steady, years-long decline that defined the Clinton presidency. This doesn’t prove that raising taxes in 1993 spurred the economy, but it does show that raising taxes on the rich was not the impediment to job creation that Republicans like Gingrich insisted it would be.
Gingrich’s claim on Sunday that “when we balanced the budget, we balanced the budget with a tax cut, not a tax” also doesn’t hold up. He’s referring to the Balanced Budget Act of 1997, which could make the Hall of Fame of deceptively titled legislation. It represented a bipartisan compromise and it did include some spending cuts (mainly to Medicare providers, with future targets set for discretionary spending reductions). But it also cost the government money, with Clinton winning Republican approval for his Children’s Health Insurance Program, which provided money to the states to insure children, and Republicans getting a reduction in the capital gains tax through the Taxpayer Relief Act, which was passed at the same time.
The next few years did bring about surpluses, but they were the result of the revenue surge brought about by the strong economy and the Clinton (and Bush 41) tax hikes – not the Balanced Budget Act. In fact, when the ’97 act was adopted, the deficit had already shriveled to $22 billion. Five years earlier, the deficit had accounted for nearly five percent of GDP, but by ’97 it was virtually wiped out. As Robert McIntyre wrote last year, “all of these surpluses (from 1998 to 2001) would have occurred if the Balanced Budget Act had never been enacted.”
The refusal of Gingrich and most other Republicans to grapple with what actually happened in the 1990s is a major reason the GOP has maintained its absolutist anti-tax posture for the past two decades. They’ve alternately credited the 1994 elections, the ’97 capital gains tax cut, and the dot-com bubble with the surpluses of the late ‘90s – anything, it seems, to avoid acknowledging the reality that taxes went up on the rich in 1993, and nothing bad happened.
Shares