Rudy Tries to Take Credit for the Clinton Boom
One of Rudy’s defenders provided his now infamous Laffer Curve quote from the Iowa debates as a comment to this post. Rudy is trying to say that nominal tax revenues during his tenure as NYC mayor because he cut tax rates. Hmm. His tenure sort of coincided with Bill Clinton’s tenure as President of the United States. Federal revenues in 2001 were almost 53 percent greater than they were in 1994 according to this source. In general, state& local revenues nationwide went up by more than 45 percent during this period. So a 40 percent nominal increase is no great achievement during a period where inflation remained positive and the entire nation was enjoying strong economic growth.
Is Rudy saying reduction in local tax rates are more important than the increase in the Federal tax rate passed in 1993? This would be a departure from the rightwing spin on whether the tax code is progressive. Right wingers – and one of the economic advisors to Mitt Romney – love to tell us how progressive the Federal tax code is as if state and local taxes didn’t exist. At the end of the day, most states were cutting tax rates as the Clinton boom led to more revenues – which allowed these balanced budget constrained entities to lower their tax rates. Of course, California had this rather long-run sensibility of a rainy day fund – albeit I suspect Governor Gray Davis didn’t respect as much as I would have wanted him too. More on this former governor later.
Something that bothers me with the supply-side stupidity of folks like Rudy is how they abuse tax revenue growth numbers as some proxy for alleged increases in economic growth rates. The reality at the national level is that average annual growth rates were only 3 percent during the Reagan-Bush41 era and have been less than 3 percent under Bush43. Compare that to the 3.5 percent growth rates observed between 1950 and 1980 or the above 3.5 percent growth rates observed during the Clinton boom – and one has to wonder what these supply-siders have been smoking. But let’s take a look at our graph, which uses more data from the Bureau of Economic Analysis that shows real GDP by state. We have graphed New York as well as the overall US economy plus my home state – California (CA). NY did enjoy a 15.8 percent increase in real GDP from 1997 to 2000 but the nation enjoyed a 13.1 percent increase. Both pale in comparison to California’s 23.4 percent increase. But this Clinton boom didn’t last and we did have the 2001 recession, which hit California particularly hard. And yes, NY’s real GDP fell in 2002. But then they did suffer more from 9/11. If one compares real GDP in 2006 to real GDP in 1997, NY enjoyed an overall increase of 34.1 percent as compared to the 31 percent national increase. Again – California’s increase was 45.6 percent.
Rudy wants us to believe that NY’s real GDP increase would never have occurred had he not cut local tax rates. Imagine how California Republicans would have reacted if Gray Davis claimed that the California boom was due to the fact that he temporarily suspended our car tax. Of course, when we had our California recession, Governor Davis reinstated the car tax. So California voters replaced Gray Davis with Arnold. Arnold wants us to believe that he was personally responsible for the California recovery. This claim comes on the heels of him not cutting taxes as he spends like a liberal Democrat. Look – the political affiliation of our governor has had nothing to do with the behavior of California’s real GDP. And for Rudy to suggest that his paltry tax law changes caused the boom in the late 1990’s has to rank as the stupid claim from the supply-side crowd. Lawrence Kudlow and Donald Luskin move over – Rudolph Giuliani is making a strong bid for Stupidest Man Alive!