President Clinton's Economic Plan

President Clinton unveiled his economic plan to stimulate the economy and to reduce the deficit. Although his plan calls for cutting spending, at the heart of the program is a substantial increase in tax rates for individuals as well as for corporations. Personal income tax rates will be increased up to 40% for incomes above $250,000. Corporate income taxes will be increased to 36% from 34%. On the other hand, spending reductions will accrue mostly in defense and in the trimming of administrative costs. The issue to be faced is whether the Clinton plan will serve its dual purpose of stimulating the economy and reducing the deficit, and each side has its proponents.

Murray L. Weidenbaum, a professor at Washington University in St. Louis, calls for increased budget cuts and decreased spending to address these national economic problems, and he states: "In the current environment, an increase in taxes is a confession of failure to control spending" (p. 111). He would see the Clinton plan as such a confession of failure, while Patrick M. Boarman, Professor of Economics at National University in San Diego, is much more concerned with the need to reduce the deficit and feels that increasing the marginal income tax rates on persons across the board can reduce the budget deficit. He states that increasing the marginal tax rates has an effect at the microeconomic level that is visually imperceptible and yet yields revenues that in macroeconomic terms can make a significant

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forgoing future consumption. Evidence of this sort of behavior was provided when wealthy people in Britain went on shopping sprees in the 1970s, buying fur coats and Rolls-Royces. It was not seen as worthwhile to invest because of high inflation and high British tax rates on investment income. The result was that the British economy stagnated while areas of London where high society gathered abounded with conspicuous consumption of luxury goods (pp. 210-211). According to the Wall Street Journal, higher U.S. tax rates, if enacted, will soon yield less revenue, not more. Two-earner families will become one-earner families; executives will take more pay in the form of perks and pensions; middle aged men and women will retire younger; fewer young people will bother to earn advanced degrees or risk starting new businesses; investors will shift into tax shelters and tax-free bonds; and corporations will get back into debt to minimize taxable profits. Economic growth and jobs will suffer, just as they did when Canada, German, and Japan imposed higher income and sales tax rates in 1990, and when Herbert Hoover and Lyndon Johnson did in the U.S. This is why supply-siders believe that the president's tax proposals will leave us wit

Category: Economics - P