May 16, 1996
By Edwin J. Feulner, Ph.D.
If the White House is smart, this will not be its theme in
Though the White House and national media have been trumpeting
the economy's "unexpectedly strong" (as The Washington Post put it)
2.8 percent first-quarter gain, this is modest growth by normal
standards -- and voters remain uneasy.
Flash back four years: With the American economy just emerging
from a two-year recession in the fall of 1992 and many Americans
nervous about their economic prospects, Carville's one-note samba
-- played over and over again throughout the campaign -- clearly
helped propel Bill Clinton into the White House, forcing George
Bush to retire to his beloved Texas.
Now it's Bill Clinton's turn to run for re-election. And though
the economy is not moving backward (the definition of a recession),
it's not setting any speed records either. Fifty percent of major
U.S. companies trimmed their payrolls in the 12 months ending June
1995, some of them significantly. Indeed, from March 1995 to March
1996, 325,000 high-paying manufacturing jobs disappeared, according
to the Bureau of Labor Statistics. The public -- especially the
nearly 8 million people who are working two or more jobs to make
ends meet -- know something is amiss. And they are concerned.
The administration's initial response was a mix of denial and
cheerleading: the silly claim that the economy is the healthiest
it's been in 30 years. The White House has had the good sense to
back off a bit from this claim.
A new study shows why.
was conducted by economists William Beach and Scott
Hodge using a highly reliable computer model of the U.S.
What the model does is simulate economic activity. By feeding
the many "variables" that affect the economy into the model -- from
changes in tax and budget policy to data on population growth and
other demographic factors -- a seasoned economic forecaster can
predict future economic activity.
Beach and Hodge turned the clock back to January 1993, before
the new administration pushed the $241 billion tax hike through the
103rd Congress. Without getting into all of the mind-numbing
technical details, they then ran the model on "fast-forward,"
asking it to tell them what the economy would look like today if
tax and budget policy had not been changed in 1993.
What they found was not good news for the White House.
They found that another 1.2 million Americans would have jobs
today if the economy hadn't been saddled with the tax increase.
They learned that the U.S. auto industry would have built and sold
an additional 1.1 million new cars and light trucks. And they
learned that the typical U.S. wage-earner would have taken home an
additional $2,600 in after-tax income.
The big numbers are equally disturbing. For example: The overall
U.S. economy would have grown an additional $208 billion between
1993 and 1996. And business investment -- the key factor in
creating jobs -- would have been $42.5 billion higher.
While there has been some quibbling about the exact details of
the Beach/Hodge findings, the overall thrust of their work remains
unchallenged: Tax hikes hurt, and the huge 1993 tax hike hurt big
If the Clinton administration wonders why American workers are
still uneasy about the economy, they should tell the White House:
"It's the tax hike, stupid!"
Feulner, Ph.D. is president of The Heritage Foundation, a Washington-based
public policy research institute.
ED051696b: "It's The Economy, Stupid," Circa 1996
Edwin J. Feulner, Ph.D.
Founder, Chairman of the Asian Studies Center, and Chung Ju-yung Fellow
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