Before President Bush gets carried away any further with the idea of increasing the payroll tax to pay for private Social Security accounts, he may want to have a careful look at what happened to President Clinton back in 1993 and 1994. Hillary Clinton gets the blame for overreach on restructuring the health care system, but just as important a development during that period was a dramatic increase in payroll taxes. As part of the budget package they passed in 1993, Mr. Clinton and the Democrats in Congress made the 2.9% Medicare tax, which had applied only to the first $135,000 of an individual’s salary, apply to the entire salary. It was a tax increase similar to one that Mr. Bush this week left the door open to; Mr. Bush this week signaled it would be acceptable to make the 12.4% Social Security tax, which now applies only to the first $90,000 in salary, apply to income above that level.

Back in 1993, conservatives denounced the Clinton idea. Daniel Mitchell of the Heritage Foundation said it would diminish “incentives to work, save, and invest.” The director of Social Security and Pension Studies at the American Enterprise Institute, Carolyn Weaver, warned in the Washington Times that “Eliminating the earnings cap will result in substantially higher marginal tax rates on earnings for high-income families, discouraging work and encouraging tax avoidance.” Rep. James Saxton, a Republican of New Jersey, said, “Many economists believe as I do, that these new and higher taxes would stifle job creation by placing too great a burden on business. At the margin, each new and higher tax puts more businesses under, moves other businesses closer to bankruptcy, makes profitable businesses less profitable, and puts more American workers out of work.”

The Medicare tax increase probably did its part to kill jobs. It went into effect January 1, 1994, and the seasonally adjusted unemployment rate rose to 6.6% in January 1994 from 6.5% in December 1993.It took until April of 1994 for the seasonally adjusted unemployment rate to dip below 6.5%, which, considering that the economy was supposed to be getting over a recession and undergoing a Clinton boom, suggested a certain weakness.

Among the jobs killed were those of a good number of Democratic senators and congressmen, who, after the Clinton tax increase, were sent packing in a historic Republican sweep of the House and Senate. The year the Democratic tax increase took effect – 1994 – was the year that swept Newt Gingrich in as speaker of the House. If Mr. Bush doesn’t recall this history, maybe some of the Republican congressmen first elected in 1994 will, and do their part to stop in their tracks any effort to lift the Social Security tax ceiling.