McClintock's response

Here is the response from Rep. Tom McClintock. Our questions to McClintock's office are in italics.

We contacted a host of presidential historians and economists to see whether they agreed with McClintock.

First, let's discuss where the experts generally agree that McClintock is right. Harding, Kennedy and Reagan each acted to lower taxes, and in fact each of them staked some political capital on that policy initiative. Each either inherited a recession upon entering office or saw one emerge early in their first term. Meanwhile, Hoover did indeed hike taxes and spending during his term, and he signed the Smoot-Hawley Tarriff Act of 1930, which raised tarriffs on thousands of goods to record levels.

However, scholars we spoke to saw a number of failings in McClintock's thesis.

1. McClintock's list of recessions is selective, in a way that favors Republicans. A look at the official list of recessions compiled by the National Bureau of Economic Research shows that McClintock ignores a number of downturns that occurred under Republican presidents Dwight Eisenhower (1953, 1957-58), Richard Nixon (1969-70, 1973-75), George H.W. Bush (1990-91) and George W. Bush (2001), while ignoring recoveries under Democratic presidents Harry Truman (1945, 1949) and Bill Clinton (1990-91).

“PolitiFact Check” attempts to portray my speech as partisan by ignoring the fact that I cited Democrat John F. Kennedy’s success in reducing economic burdens and Republican Herbert Hoover’s disastrous tax and regulatory increases. Further, it creates a straw man by implying that I suggested the list of recessions was comprehensive. If I had had more than 60 seconds, I could have gone much further, including the fact that the post war recovery followed Democrat Harry Truman’s Revenue Act of 1945, which repealed the excess profits tax and reduced personal and corporate income tax rates.

Furthermore, “PolitiFact Check” could use some fact-checking when citing the recovery under “Bill Clinton (1990-91).” Clinton didn’t take office until January of 1993!

2. Recessions stem from a number of causes. Sometimes they are caused by factors internal to the economy (such a downturn in the business cycle) and sometimes they are prompted by an external development (such as oil shocks of the 1970s or the 9-11 terrorist attacks). Because these recessions have different origins, economists say, no single policy prescription that works for all of them. This suggests that McClintock is oversimplifying matters.

“PolitiFact Check” is correct that in 150 words I could not discuss monetary policy, geopolitical causations, competing schools of macroeconomic theory or the gold standard. My remarks were confined to the effect of tax and regulatory burdens on an economy, and the matter isn’t complicated: if you tax something, you get less of it.

3. McClintock distorts Hoover's tax record. It's true that Hoover signed the Revenue Act of 1932, which more than doubled the top income tax rate and is generally believed by historians to have worsened the nation's economic situation. But he signed the law three years after Depression began, so for the first three years of his tenure, the economic outlook worsened without any assistance from a tax hike. Indeed, the tax laws then in force were initiated by steep tax cuts urged by long-serving Republican Treasury Secretary Andrew Mellon and enacted under Hoover's predecessors, Warren Harding and Calvin Coolidge -- not necessarily a winning argument in favor of low taxation. Finally, Hoover did institute a modest tax cut after the stock market crash of 1929.

“PolitiFact Check” apparently doesn’t understand that a tariff IS a tax. The Smoot Hawley Tariff Act – which increased taxes on some 20,000 imported products -- was instituted at the outset of the recession, making its way through Congress during the summer and fall of 1929 and was signed into law by Hoover in June of 1930. In the words of economist Arthur Laffer: “While Fed policy was undoubtedly important in the 1930s, it was not the primary cause of the Great Depression or the economy’s relapse in 1937. Instead, the Smoot Hawley tariff of 1929 / 1930 was the catalyst that got the whole process going. It was the largest single increase in taxes on trade during peacetime and precipitated massive retaliation by foreign governments on U.S. products. Huge federal and state tax increases soon followed thus doubling down on the initial decline in the economy caused by the Smoot Hawley tariff. Additional large tax increases in 1936 were the proximate cause of the economy’s relapse in 1937.” (Lessons from the Great Depression, Sept 10, 2009, emphasis added)

Perhaps “PolitiFact Check” could identify the federal act that it contends “instituted a modest tax cut after the stock market crash of 1929.” We can find no record of one. [There was one; it's now cited in full in the article. -- PolitiFact.]

4. The Reagan recovery may have been dramatic, but it was anything but "rapid." The second dip of the "double-dip" recession of the early 1980s -- which occurred entirely on Reagan's watch -- lasted 16 months from peak to trough, which was the longest recession between the Great Depression and the current "Great Recession."

“PolitiFact Check” ignores the fact that the provisions of the Reagan Economic Recovery Tax Act of 1981 did not take effect immediately, but were gradually phased in. The bill was signed into law on August 31, 1981, and enough provisions had taken effect by November of 1982 to bring the recession to an end. What then followed became the longest peacetime economic expansion then on record.

5. Focusing on the presidential role in combating recessions ignores other important factors. Something McClintock's formulation ignores is the enormous role of the Federal Reserve in leveraging monetary policy to fight recessions. For instance, many give Fed Chairman Paul Volcker significant credit for the 1980s recovery, due to his leadership (supported by Reagan) in bringing down double-digit inflation. Meanwhile, some argue that, prior to the presidency of Franklin Roosevelt, federal revenues and spending were so small as a percentage of the nation's economy that presidents had only weak levers to work with as they tried to influence the broader economy.

Once again, my remarks were confined to tax and regulatory policy. But if “PolitiFact Check” would like to venture into monetary policy, perhaps it would comment on Fed Chairman Ben Bernanke’s leadership (supported by Obama) that has more than doubled the monetary base in the last 12 months and is setting off inflationary alarm bells across the economy. If Volcker’s policy was correct (and it was) then by “PolitiFact Check’s” own standard, Bernanke’s is incredibly risky. Finally, in addressing spending as a percentage of GDP, perhaps “PolitiFact Check” could explain the fact that Herbert Hoover increased federal spending from $2.9 billion in 1928 to $4.66 billion in 1932 -- a leap of 60.7 percent in just four years while GDP contracted.

6. Tax hikes don't always prevent a recovery. George H.W. Bush and his successor, Bill Clinton, raised taxes, and soon after, the 1990-91 recession subsided and a decade-long boom began.

First, “PolitiFact Check” once again has its facts wrong when it comes to the years Clinton served as President. The 1990-91 recession officially ended in the first quarter of 1991; Clinton became President in the first quarter of 1993.

With respect to the economic growth during the Clinton years, it is “PolitiFact Check” that is ignoring other economic factors, including Clinton’s welfare reform act and NAFTA. Clinton’s fiscal policy embraced significant tax cuts, including ending the “retirement test” for social security benefits (a huge tax cut for elderly workers) and signing the largest capital gains tax cut in history which exempted owner-occupied homes from any capital gains tax and reduced government spending as a share of GDP by an amazing 3 ½ percentage points.

Finally, “PolitiFact Check” misrepresents the sequence of events attendant to the tax increase under George H.W. Bush. Bush publicly agreed to the tax hikes in June of 1990 and signed them into law in October, 1990. The recession began in the third quarter of 1990.

7. The Obama record isn't settled yet. So far at least, Obama hasn't raised taxes; he actually cut certain taxes as part of his economic stimulus package. It's true that passage of health care reform would involve raising taxes, and passage of a "cap-and-trade" climate-change plan would represent an increase in regulation. But both initiatives are staunchly opposed by Republicans and there's no guarantee they'll be enacted, and if so, what their provisions will be.

“PolitiFact Check” confuses tax credits and hand-outs with marginal rate tax cuts. They are two entirely different things.

But more to the point, “PolitiFact Check” has just stumbled over the entire point of my speech. Barack Obama is seeking to raise taxes and increase regulatory burdens. It would be a terrible mistake to do so.

8. Finally, correlation does not mean causation. Even if tax cuts happened to coincide with recoveries and tax hikes tended to coincide with recessions, it doesn't necessarily mean that one causes the other. For instance, tax cuts and deregulation likely aided the Reagan recovery (as did Volcker's inflation-fighting efforts) but historians say that higher defense spending, a Reagan priority, also helped bring the U.S. out of recession. Meanwhile, Kennedy, in addition to cutting taxes, supported major increases in public works spending, not least the space program. The implementation of so many policies at the same time makes it hard to say which factor mattered more in the Kennedy recovery.

Never did the spending during the Reagan and Kennedy administrations push the deficit above six percent of GDP. Obama is pushing 10 percent, or nearly twice the proportion.

But “PolitiFact Check” does bring us to the fine point of the matter. How many successful recoveries promoted through cutting taxes will it take before we are willing to recognize that it has a positive effect on the economy? And how many tax increases must we endure before we learn that it is the last thing a government should do in a recession?

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