J.D. Foster, Ph.D., writes:
Proponents of tax increases often reference the Clinton 1993 tax increase and the subsequent period of economic growth as evidence that deficit reduction through tax hikes is a pro-growth policy. What these proponents ignore, however, is that the tax increases occurred at a time when the economy was recovering from recession and strong growth was to be expected. They also ignore that the real acceleration in the economy began in 1997, when economic growth should have cooled. This acceleration in growth coincided with a powerful pro-growth tax cut.
The evidence is persuasive that the tax increase probably slowed the economy compared to the growth it would have achieved and that the subsequent tax cuts of 1997, not the tax increases, were the source of the acceleration in real growth in the latter half of the decade. As taxes are now above their historical average as a share of the economy, and are rising, Congress should look to enact additional tax relief to keep the economy strong.