Clinton Economics Hurt Small Businesses, Family Income

Remember when candidate Bill Clinton called President Bush's economic growth record "the worst economy in 30 years?" As it turns out, only one of Clinton's growth rates in gross domestic product (GDP) - 2.2 percent in 1993, 3.5 percent in 1994, 1.3 percent in 1995, and most likely 2 percent this year - will match Bush's 2.7 percent GDP growth rate in 1992. Further, none of Clinton's growth rates match the 4.0 percent average annual growth rate achieved under Reagan's policies from 1983 through 1988.

The bottom line? Had Clinton maintained the 4.3 percent growth rate of Bush's final quarter, GDP would now be higher by an average of $3,500 per family. Clinton was all smiles recently about the 239,000 new jobs created in June, taking credit for "the most solid American economy in a generation." One must wonder, however, how many of these jobs would have been created had Hillary Rodham Clinton's health mandates been enacted, and how many more jobs would have been created without Clinton's 1993 tax hike.

June hiring was exceptionally strong, especially in Atlanta in preparation for the summer Olympics. Manufacturing, in contrast, lost 7,000 jobs in June. Overall, June's job growth was concentrated in the service sector, with retail stores adding 75,000 jobs, almost half of them in restaurants and bars.

It's this small-business retail sector that most vigorously opposed the Clinton health plan, seeing the increased costs as an unaffordable mandate that would kill jobs and businesses. At the time of the health-care debate, Laura D'Andrea Tyson, the Clinton administration's chief economist, estimated an employment loss of 600,000 jobs, primarily in the small-business sector, if the Clinton health program were enacted. Restaurant owners told the first lady that funds were simply not available to cover her proposed health-insurance scheme. Her response? "I can't go out and save every undercapitalized entrepreneur in America."

While Clinton's health plan was defeated, the administration in 1993 succeeded in passing the largest tax hike in American history, aimed primarily at the sector that produces the vast majority of America's jobs. Nearly three-fourths of the $200,000 family incomes hit by the Clinton tax increase were incomes of small-business owners, the people who innovate, invest, and create most of America's employment. During the past decade, small businesses have become the key employers of the workers set adrift from large corporations.

Since 1985, as Fortune 500 firms cut 3.5 million jobs, newly formed businesses hired 12 million new workers. Since the mid-1980s, small and medium-sized firms have created six times as many jobs as Fortune 500 corporations cut. The record over the past three decades is clear - workers benefit when government policies create a healthy climate for small business. Real median family income, adjusted for inflation, fell 8 percent during the 1970s, when top income earners, were burdened with a job-killing 70 percent top marginal tax rate. In contrast, in the eight years following the Reagan tax cuts, with the top rate for job creators was lowered to 28 percent, GDP growth increased, demand for labor rose, and median family income, adjusted for inflation, increased by 11 percent. And contrary to the media that sneer at trickle-down economics, real family income grew in every income group during the 1980s.

In the poorest 20 percent of families, real family income, adjusted for inflation, increased by 12 percent during the 1980s, reversing a 17 percent slide during President Carter's term. The poverty population, after growing by 7 million in the late 1970s, declined by 4 million during the 1980s. Overall, real median family income, adjusted for inflation, rose by $4,564 between 1982 and 1989. SINCE 1989, the picture has been less rosy. Under Bush and Clinton, with businesses hit hard by increases in regulations and litigation, and by tax hikes that kicked the top marginal rate back up to nearly 40 percent, growth has slowed. The result? The typical family has lost income. "Under the Clinton administration," reports Christopher Frenze, chief economist to the Joint Economic Committee of Congress, "the growth rate of real family income has been zero percent."

In response to this economic stagnation in family income during their watch, administration officials have chosen to distort the facts. "If you go back over 15 years, real family incomes have fallen," says Treasury Secretary Robert Rubin. Labor Secretary Robert Reich claims that the Reagan-Bush period equalled "12 years of stagnation and decline for most working Americans." Incomes in every group rose in the 1980s. Higher taxes, new regulations, and aggressive litigation during the Bush-Clinton period have halved America's economic growth and braked growth in family incomes.

Ralph R. Reiland, owner of Amel's Restaurant in Pittsburgh, is associate professor of economics at Robert Morris College.

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