TCS Daily

Which Clinton Economy Does Obama Admire?

By Rafael Resendes - October 31, 2008 12:00 AM

During his acceptance speech, Barack Obama eloquently voiced the need for America to return to the successful economic policies of the Clinton Presidency when the nation prospered, and people came before Wall Street.  But which term was he referring to?

Big Government and Tax the Rich

During his speech, Obama referred to raising the tax rate on the highest earners, increasing the capital gain tax rate, radically revising the health care system, and aggressively pursuing spending on infrastructure projects.

When Clinton entered office, he also proposed raising taxes on the highest earning Americans, expanding spending on the nation's infrastructure, and redefining the nation's health care system. There is no doubt that Senator Obama seeks to follow the Clinton's economic blueprint. Unfortunately, those are a set of collective failed policies that he seems to idealize. Using a benchmark that Senator Obama often holds out to evaluate economic success, President Clinton's first term was clearly a failure compared to that of President H.W. Bush who preceded him. Unemployment during Clinton's first four years in office averaged 6.5% compared to 6.3% under the first Bush. The economic track record of Clinton's first term is particularly distressing, as Clinton entered office on the tail wind of an economic recovery, yet he still fell short of Bush's economic record. Collectively, Obama's policies to raise taxes on income and capital gains, combined with massive spending related to expand welfare payments and health care reform has an empirical track record, and it is called failure.

Smaller Government and Lower Capital Gains Taxes

Ironically, Clinton's economic success came as the Republicans regained control of Congress and set the country in a new economic direction with promises to cut capital gains taxes. However, this period of success and new direction are the very policies that Obama consistently vilifies, and seeks to undo. During this period, Clinton created the economy that led Alan Greenspan to remark how Clinton was the best "'Republican' president in a long time." The defining economic policy driver of Clinton's second term was aggressively cutting the capital gains tax, which the market began to anticipate in 1996. Though Clinton was politically forced to alter his policies to a new political reality due to the sweeping success of House Republicans and their Contract With America in 1994, Clinton's reputation will forever reap the benefits.

The Contract With America sought to reduce capital gains taxes by 50 percent. Ultimately, with the final version of the Taxpayer Relief Act of 1997, capital gains tax rates dropped approximately 30% for the highest earning Americans. Also in late 1996, Clinton and Congressional Republicans agreed to welfare reform that further reduced the role of the federal government in everyday life. The result of lower taxes, and a smaller federal government under President Clinton was nothing short of miraculous. During Clinton's second term, unemployment fell about 30%, and averaged 4.5%.

An alternative evaluation of the Clinton years is revealed through the stock market. While Clinton was clearly enacting the policies he advocated during his first campaign, the stock market returned 5% a year, well below its historic 9% annual rate. However, as it became clear that President Clinton would work with Republicans on the items covered by the Contract With America, the market became much more favorably disposed, returning 20% annually during the last six years of his Presidency. Ironically, Senator Obama's policies are diametrically opposed to the ideas that produced the Clinton economy he so warmly embraces.

Expanding the Welfare State as an Economic Plan

In a very sneaky manner, Senator Obama has seemingly embraced Republican rhetoric, by claiming that his economic plan is built around reducing taxes for 95% of Americans. Sadly, Senator Obama seemed to only learn fuzzy math from the education system he refuses to fundamentally reform. After all, how can 95% of the population receive income tax reductions, when approximately only 41%, or 100 million individuals, of the taxable population pay no federal income taxes? This makes no sense. While it is of course physically and/or logically impossible to cut income taxes for those that do not pay them, Senator Obama works around this by providing refundable tax credits of $500 to individuals and $1000 to families that pay no taxes. This in essence creates $750 Billion a year of new welfare spending. Again the irony is President Clinton worked very hard to reduce and eliminate welfare, while Senator Obama makes it a fringe benefit for voting for him.

What is particularly disingenuous about this plan, is that unlike the logic of past tax cuts, which provided incentives for individual to work and earn more, and thus consistently resulted in higher revenue for the Treasury, this approach actually provides individuals incentives to work less. Obama currently couches his vision of expanding welfare under a fairness argument. He argues that only those earning more than $250,000 year will incur higher taxes.

Unfortunately the number of earners making $250,000 or more a year is very small relative to the number of people they must support under this plan. In 2005, out of 104 million filed tax returns, approximately 3 million had incomes exceeding $250,000. In other words, Obama looks for each person in this income bracket to pay an annual welfare payment of $500 a year to 30 individuals, for an average burden of $15,000 per tax paying citizen. While Obama has currently stated this expense should only be the burden of those earning more than $250,00 a year, the sad truth is that it will be too easy and tempting to reach to lower income levels to and promise more and more benefits to those not paying taxes to keep getting their votes. History has consistently shown one thing, when the government begins giving money away to get votes, it tends to have very little restraint on its appetite to give even more away later for more votes. This eventually means tapping more and more citizens to feed the machine.

Rafael Resendes is the Co-Founder of The Applied Finance Group (AFG), and Managing Director of Toreador Research and Trading.  He is also co-author of  AFG's Monthly Market Review, a free monthly market newsletter available at:


"History has consistently shown one thing, when the government begins giving money away to get votes, it tends to have very little restraint on its appetite to give even more away later for more votes. This eventually means tapping more and more citizens to feed the machine."

Just watch HBO's Rome...particularly the second season when they say, "Well have to kill some more rich people and take their wealth in order to pay for (this and that)."

Next prediction: The historical data documented in this article that totally refutes the claims of Roy and Bob regarding taxation of capital gains will be totally ignored by those two. Bob might even try to throw us some garbage to 'refute' it.

Some other thoughts to consider on taxes
In 1913 the tax rate was 1% on taxable net income above $3,000 ($4,000 for married couples), less deductions and exemptions. It rose to a rate of 7% on incomes above $500,000 (

Another thought to consider is Hauser’s law ( which states that taxes collected are always 19.5% of GDP. So if the U.S. does go into a recession of depression. What will Obama have to cut to pay for his pet programs? Furthermore if he gives tax revenue to non working individuals what important government functions will be neglected?

Interesting times ahead
Well, fellow countrymen, it looks like America is in for some interesting times. I only wonder how interesting things will get.

Will America go as far left as Sweden, where the government seizes and controls nearly half of the GDP and the middle class pays nearly two thirds of its income to the state via an all-encompassing array of taxes?

Life in Sweden isn't so bad so long as you have no ambition and don't mind getting smacked down every time you try to rise up. And nearly 20% real unemployment isn't so bad, either; there's nearly always a few buddies to hang out with when you lose your job. Of course, there's always the black market, which some economists speculate adds a further 15% of shadow GDP to Sweden's total. Joe the Plumber might do pretty well in the Democrat's America, but only to the extent he fixes pipes off the books.

What's really got me spooked is Obama's plan to build a Civilian Security Force. This brings to mind Pres. Wilson's Committee on Public Information (CPI), which was a secret police style organization that promulgated pro war and pro Wilson propaganda while cracking opponents' heads, even murdering a few of them. I also recall FDR's Blue Eagles, who outdid Wilson's CPI. Keep your guns loaded and your eyes sharp, guys.

But don't count on keeping your second amendment rights for long. Obama looks poised to pack the courts with judges who will take away your rights to keep and bear arms. And that's just for starters. What would really put the icing on the cake is if liberal judges discover the federal government's obligation to implement redistributive justice in the penumbras and emanations of the constitution.

Interesting times ahead, indeed. I'll be watching closely and with rapt fascination, for what happens next will determine if there really is anything exceptional about America and her people. Will we resist the slide into totalitarian statism, or will we cling to the principles our founding fathers bequeathed to us? We'll see.

No brainer
The McCain campaign should have been hammering away at this simple to understand economic policy from day one. It is all anyone needs to know about Obama.

He is quite literally buying his way into the White House with taxpayer dollars. And it's cheap at that.

Liberal Agenda Inhibits Real News
Obama certainly isn't hoping that Americans will figure out that his rhetoric is that, and only that - hot air.

Liberals so often seem to forget that they are not the only educated people in the country. Intellectual elitism and leftist illuminati agendas keep them from remembering that some people out here still use critical thinking when they hear skewed versions of events.

But I suppose Obama has to mollify the Clintons as often as he can - if I were him, I don't think I'd give them the security code to my house!

People happier in socialist countries
I had to mention this. The happiness surveys all give Europeans with the strongest social safety net marks for having the highest happiness quotient. Take a look at this 2006 survey, for instance.

Swedes are the seventh happiest people on earth, belying the old saw that they are a dark and moody people, full of Bergmanian angst. Danes are the happiest of nations, while Icelanders (at least before their safety net broke up) are the fourth happiest. Your Swiss come in at number two.

Meanwhile that bastion of capitalist freedom, individualism, free enterprise and all that, ranks 23rd.

How can that be? Is it possible that systems that concentrate wealth into fewer and fewer hands result in the spread of unhappiness and want?

We'll soon be trying the other option, by popular demand. With a Democratic executive, House and Senate, maybe we can turn the corner on profligate spending, returning to those halcyon days of 1996-98 when we were able to pay our debts down. And we can begin the task of weeding out third rate political operatives ("Brownies") from the crannies of government, to put into place people who are both competent and dedicated to the task.

Or maybe that won't happen.. who knows at this point? At least the American public has finally figured out that anything at all is better than what we've been putting ourselves through.

I have heard that monks are very happy people.
There is your solution.

Force everyone to where robes and perform manual labor and they will be happy.

Why aren't people in other socialist paradises happy?

BTW, what is 'happy'?
Denmark is a very small country and culturally homogeneous.
Which is one reason why their socialism works as well as it does.
Compare similar geographic and homogeneous regions in the USA for an apples to apples comparison.

In Finland and Norway, the people drank heavily. One reason I attribute this to is the state limits what they can do. If someone is happy making money or growing a business or wanting more, he is prevented by the state, which doesn't make him happy.

This quote by Janet Daley (Daily Telegraph - UK) pretty much sums it up best:

"[I]n one of those bizarre jokes that history sometimes plays, the United States is apparently about to choose as president the most inexperienced, untried and virtually unknowable (because there is so little to know) candidate who has ever run for that office at a time of unquantifiable international risk and unprecedented economic instability: a candidate who, as Bill Clinton revealed in a wonderfully back-handed "tribute", responded to the banking collapse by ringing every expert he could find (including Bill) to ask them what he should be saying."

-from "Barack Obama victory will hurt US firms - and world economy"

Oh, Roy...
...such silliness! As if "happines" is the "be all and end all" of existence! But if the rest of the world is so happy, why do so many rush to our shores??

In any case, Roy, Denmark is not a true part of socialist Europe, as capitalism is alive and well.

Regardless, I have no doubt that the lazy refuge of the socialist nations are happy living on the dole, and any nation that is happy to have have them is sure to have a higher happiness quota. But there is great angst among the working middle class across the world, and I bet if they would be polled, their happiness quotient would show a lot to be desired.

And where, Roy, is the "spread of want" in the US? The poor of this nation want for very little, at least in the area of necessities. Yes, they may "want" a bigger piece of the pie, which they are welcomd to should they decide to work for it.

But a nation that punishes success and rewards mediocrity is a nation that is doomed to BECOME mediocre. Sort of like France, Germany, and Sweden, those bastions of socialistic dogma! There, but for the grace of God (or if Obama is elected), go we!

What crack pipe are you smoking from, Roy?
"With a Democratic executive, House and Senate, maybe we can turn the corner on profligate spending, returning to those halcyon days of 1996-98..."

Pelosi and Barney Frank have already stated that they are going to rev up the deficit spending works big time. So has Obama, since his socialized health care program will cost more than enough to break the budget all by itself.

And then there are the continuing bailouts. The Dems will not cut profligate spending. They will increase it.

So, everything you've stated is either a blatant lie on your part to deceive people into voting for Obama or you are (as usual) just in denial.

" put into place people who are both competent and dedicated to the task."

Like Jim Johnson and Franklin Raines? The two smucks who bankrupted Freddie and Fannie? Oh yeah...competent and dedicated.

I met a Swede who actually lives in London. Why does he live there-- because of the excessively high taxation in Sweden. He wasn't some millionaire either.

He said that there are a large number of entrepreneurial-minded Swedes and Frenchies and others who left their home countries to either (a) get more after tax income in their professions (doctors, accountants) or (b) start businesses that they couldn't back in their home nations.

So, in other words, they fled their homelands for the same reasons why Mexicans flee theirs -- economic opportunity.

I guess that means that all the 'leftovers' -- folks who just show up to work or the local welfare center -- are what's left. No wonder they are 'happy'.

Oh, and if they are so damn happy...why are they so envious of America then?

Yeah... "It Can't Happen Here" by Sinclair Lewis.

An oldie but a goodie.

Re-read 'Atlas Shrugged' and rent the DVD "The Last King of Scotland", too.

'1984' and 'Brave New World' would be on my list of recommended reading, too. But then Roy would accuse me of going overboard with a wee bit of credibility to that charge, I have to admit. So, don't read those people! Don't read them at all!

But, if you work in the coal industry or any enterprise that supports said industry, I would recommend that instead of reading that you take a correspondence course on plumbing or locksmithing instead.

What a bunch of selfish SOBs!
To want more and not want pay their 'fair' share of taxes.

Interesting comment on hammering away
McCain and Palin had to spend most of their time refuting the lies that the MSM spread about them. How were they to get their stories published? The same way Bush has been trying to get his story of the economy being in trouble and needing to be addressed since 2003? McCain talked about this since 2005. Do you remember reading anything but the comments of Barney Frank and Chris Dodd and Joe Biden and Nan Pelosi and Harry Reid about how there was no problem - talk about Panglossian! And these same fools are now going to fix this problem that they claimed up until Sept did not even exist? RIGHT!!!!!

That is correct, because there were failed policies of the left-wing illuminati, and everyone is overlooking that fact. So which policies will the new president choose.

The sad thing is...
It came down to 'inexperienced' or experienced at giving tax breaks to companies relocating their jobs to China. In that scenario, I'd be inclined to vote the 'inexperienced' candidate over one with such unsavory experience for his voting record.

The real deal
By doubting Obama admires Clinton's plans you're assuming Obama wants the US economy to do well.

In fact he wants the opposite, he wants it to fail utterly.
A failing economy combined with a gutted military and law enforcement will allow him almost unprecedented leverage to tighten his hold on the country through oppression.
People will be willing to do almost anything to get "security", both physical and financial, from the government, and Obama will be ready and willing to supply both.
But it will be costly. Government handouts and security will come at the price of severe government control of everyday life.
Secret police, informers, people being whisked away from their homes to "reeducation camps" for "their own safety" in the middle of the night, etc. etc.
Look at Nazi Germany in the 1930s or the USSR in the 1950s to see where the US is headed over the coming years.
And that includes the destruction of the democratic system at the hand of Party thugs.

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