‘Book-Keeping Triumph’
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
Just a further note on those projections of the budget deficit that now are looking overly pessimistic. The New York Times, as we noted Monday, spun the $70 billion improvement in the deficit into the straw of a mere “bookkeeping triumph.” In this quasi-conspiracy theory scenario, the Executive Branch is said to have cooked the books, not by making things appear better than they are, but by inflating the negative projections so that, at the end of the day, things can appear better than expected come the October announcement that the deficit has fallen.
There are a number of obvious problems with this scenario. One is that it would require the participation of the legislative branch as well, because the Congressional Budget Office also overestimated this current year’s federal deficit. There’s no word yet on what the judicial branch’s forecast would have been, but if the Supremes ever decided to get into the act we suspect that they would have done the same. Why? Because the secret of this debate is that the government essentially uses static scoring, not dynamic.
That fails to take into account the in crease in revenues that tax cuts can trigger if they’re done on the margin.
At the heart of the debate stands this question: Should economics be an empirical science or should it be an ideological one?
If empirical, then the boost in tax revenues that accompanied the Coolidge, Kennedy, Reagan, and second-term Clinton tax cuts should be worked into our models.
And also the boost in revenues that followed the Bush cuts, too. Our vote for the most underreported piece of financial news so far this year is that following the president’s acceleration of marginal tax rate cuts and imposition of lower rates on dividends and capital gains last year, tax receipts have not gone down as predicted — they’ve gone up. The first seven months of fiscal year 2004, which starts in October, have seen receipts soar $14 billion to $1.070 trillion from the first seven months of the prior year.
In other words, the tax cut did not cause the deficit; the tax cut has lessened it. Failure to take this into account — a failure encouraged by the left — is why projections of the budget deficit have been erroneously pessimistic.
