Can the Hillary Clinton budget plan make history repeat itself? That’s the aim of the former first lady, who is looking back to the 1990s for answers to today’s government budget woes.
The Bill Clinton era
Last time the American government made more money than it spent was in 1998, when Sec. Hillary Clinton’s husband, Bill, was president.
While running against Barack Obama for the 2008 presidency, Sec. Clinton hinted that she would borrow portions of her husband’s budget plans if elected. During her 2016 presidential campaign, she hasn’t said anything to suggest she thinks differently.
“We don’t have to go back very far in our history, in fact just to the 1990s, to see what happens when we do have a fiscally responsible budget that does use rules of discipline to make sure that we’re not cutting taxes or spending more than we can afford,” Clinton said at the 2007 Des Moines Register Democratic Debate. “I will institute those very same approaches.”
During the 1990s, her husband’s budget proposal depended largely upon the Omnibus Budget Reconciliation Act, also known as the Deficit Reduction Act. Narrowly passed in 1993, it boosted income taxes for those making more than $115,000 from 31 to 36 percent and raised the income tax ceiling to 39.6 percent for those making over $250,000. Additionally, it increased corporate income tax from 34 to 36 percent.
Income taxes
In line with the Deficit Reduction Act in 1993, Clinton wants to increase income taxes on individuals and businesses. However, she plans on doing it a little differently than her husband did. According to her proposed tax brackets, those making over $5 million would be taxed at 43.6 percent as opposed to 39.6 percent.
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Though she would impose tougher taxes on the wealthy, her proposal displays how the perception of “middle class” has changed since the 1990s. Unlike the Deficit Reduction Act that required those making over $115,000 to pay 36 percent in income taxes, only those making $413,350 or more would be taxed at 35 percent under Clinton’s plan. She also suggested capping itemized deductions at 28 percent and increasing the rates on medium-term capital gains.
When accounting for the decreased economic output that could result from the tax hikes, the Tax Foundation estimated Clinton’s plan would generate $191 billion in government revenue over the next decade. The Office of Management and Budget predicted that the budget deficit for 2016 alone will be $615.8 billion.
The “shadow banking industry”
Sec. Clinton has big plans for new government programs that she claims will slash college tuition, rebuild infrastructure and boost renewable energy creation. Needless to say, these won’t come cheap.
In order to pay for these programs, Clinton has also promised to crackdown on big banks and hedge fund managers.
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One potential revenue-generating strategy involves implementing high a frequency-trading tax, which would heavily affect businesses that place millions of orders per year. It would only apply to transaction cancellations, which have been decried as being manipulative and destabilizing.
It would be similar to France’s financial transaction tax, which was enacted after the market collapsed in 2008. In 2014, Paris estimated that a tax on share transactions in 11 European Union countries would generate a total of six billion euros or $6.81 billion per year.
Public program spending
According to Internet publisher McClatchyDC’s calculations, Clinton’s new public program spending proposals will cost the nation over $1.1 trillion over the course of a decade. The predictions suggest that $350 billion of that would be allocated towards college affordability and $275 billion would go towards improving infrastructure.
Based on the financial assistance these two initiatives would receive, it’s safe to assume higher education and infrastructure are two of Clinton’s top priorities. Loren Adler, research director for the Committee for a Responsible Federal Budget, estimated that in ten years the revenue generated by Clinton’s tax increases could make up for the surplus in expenses. However, passing those tax hikes through a potentially conservative Congress could prove challenging.
Our take
In 1993, Bill Clinton also proposed a number of infrastructural programs that were ultimately turned down for fear that they could increase the deficit. Like most Democrats, much of Hillary Clinton’s political platform revolves around creating new government programs and expanding some existing ones.
Unlike Donald Trump, who said he would cut certain government agencies, her plan depends heavily on increasing taxes in order to help those government agencies grow. Her ability to potentially generate a surplus rests on whether job creation and tax hikes can bring in more revenue than her new programs will be spending.
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Header image: Getty
