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The Mythical Marginal Tax Rate Cure-All

By Albert R. Hunt
December 16, 2012 11:48 AM EST

For Republican supply-siders, denying that marginal tax rates are the sole way to induce or impede economic growth is equivalent to apostasy.

In the 1980s, under President Ronald Reagan, the supply-side tax cutters were in their element. As the debate rages anew -- President Barack Obama wants to raise the top rate to 39.6 percent from 35 percent -- the records of the incumbent president's two predecessors give supply-siders political heartburn.

President Bill Clinton raised marginal tax rates in 1993. Over the next few years and beyond, economic growth flourished, unemployment plummeted and the budget picture brightened.

In 2001 and 2003, President George W. Bush cut marginal rates. Over the next few years and beyond, the economy stagnated, unemployment rose and the deficit ballooned.

Clearly, there were other important factors than taxes: the technology boom of the 1990s benefitted Clinton; terrorism and wars hindered Bush.

Both sides know that isn't a sufficient explanation. Daniel Mitchell, of the Cato Institute, asserts that Clinton's record of surpluses was a result of spending restraint. There are numbers to support that; it's also true that federal revenue increased 37 percent in the four years after the 1993 tax increase.

The 2012 Republican vice-presidential nominee, Representative Paul Ryan of Wisconsin, insists that it is unfair to compare  Clinton and Bush on taxes. Clinton, he argues, had the tech boom and the peace dividend resulting from the end of the Cold War; Bush had to cope with the end of the technology bubble, terrorism, a few foreign wars and the financial crisis.

The crisis didn't occur until the end of Bush's administration and he chose to wage those wars.

(Albert R. Hunt is Washington editor at Bloomberg News and a Bloomberg View columnist. Follow him on Twitter.)

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