Note that Clinton's surplus meant that the country was taking in more money, mainly thru taxes, than it was spending. This was decreasing the national debt, but there was still plenty of national debt when Bush 2 chose to reduce taxes on the very rich.
http://www.thefiscaltimes.com/Columns/2012/12/04/Why-the-GOP-Wont-Admit-Supply-Side-Econ-Has-Failed.aspx#page1
By MARK THOMA, The Fiscal Times
December 4, 2012
The Republican Party has long promoted itself as the party of business. Republicans understand the needs of business, we are told, and if the country would leave the economy in their hands business would boom. All we need to do is to give those at the very top of the income distribution – the “job creators” – more income through tax breaks, and then sit back and wait for the magic happen. Our investment in the wealthy will produce remarkable economic growth, and everyone will be better off.
The Bush tax cuts were a test of these claims about supply-side economic policies. To justify the tax cuts the nation was, in effect, given a business prospectus from the Republican Party. We were promised that cutting taxes on the wealthy would result in much higher economic growth and broadly shared prosperity. For those who wondered how we would pay for such a large cut to the government’s revenue stream, the Republican prospectus had a remarkable claim. The tax cuts wouldn’t cost us anything. Growth would be so strong that the tax cuts would more than pay for themselves. Even those who admitted that the tax cuts might not be fully self-financing still made strong claims about faster economic growth offsetting much of the lost revenue from the tax cuts.
The reality, of course, has been quite different. There is little evidence that the Bush tax cuts, or any other tax cuts directed at the so-called job creators, have had a noticeable effect on economic growth. And the promise of broadly shared prosperity has not been realized. Most of the gains from economic growth in recent decades have gone to the top of the income distribution while the inflation adjusted wages of the working class have been relatively flat. Furthermore, the tax cuts have not paid for themselves as promised, and it hasn’t even been close. The Bush tax cuts have already cost us trillions in revenue, and if they are extended for high income tax payers, they will cost us roughly another trillion over the next decade.
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In fact, the Bush tax cuts can be thought of as a loan from the Social Security Trust Fund that was supposed to be paid back with the revenues from higher economic growth, a loan that is presently in default.
To see this, recall that the government began intentionally collecting a surplus from the Social Security program beginning in 1983 in order to prefund the retirement needs of baby boomers. The idea was to run a surplus for several decades while the baby-boomers were still working to get ready for the deficit years the system would experience after they retired.
The revenue from Social Security over and above what was needed to fund payouts reduced the overall government debt and allowed taxes to be lower than they could have been without these surplus funds. For example, the surplus that Bush inherited from the Clinton administration was largely due to the Social Security Trust Fund, and Bush argued it would be better to give this surplus to the private sector through tax cuts than to leave it in the hands of the government.
But it wasn’t better. The income of the wealthy grew as they pocketed the tax cuts, but workers experienced stagnant wages, a recession that hit working class households particularly hard, and intense pressure to cut important social programs.
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A true party of business would end our investment in the false promise of supply-side economics. However, a party with a goal of reducing the scale of programs such as Social Security and Medicare along with delivering tax cuts to wealthy political backers would use arguments about the economic effects of tax cuts to disguise its true intentions. Which description fits best?
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