I’m listening to a bunch of old farts argue about the US budget and optimal tax policy, with none of them making a damn bit of sense… The one thing that drives me crazy is when people talk about the Clinton years as some sort of fiscal nirvana.
Yes, the Republicans fought for welfare reform and Clinton raised taxes and all was well, and they act as though that happened in some sort of economic vacuum. It didn’t.
Two very powerful economic forces hit the US economy simultaneously. One was the sudden unforeseen demise of the Soviet Union. A total outlier that fostered the “peace dividend” and allowed defense spending to be slashed.
The second was the rise of the personal computer and the subsequent dawn of the internet. Revenue came in so fast during the boom that the government couldn’t spend it fast enough.
So, when thinking back on the right mix of rates and revenues, don’t forget the macro forces at play.
