Chris is too conservative once again

With his estimates I mean. According to NY Times reporting this morning, "an unexpected leap in tax revenue is about to shrink the federal budget deficit this year, by nearly $100 billion." So much for possibly as high as 90 billion. As the article notes further,

"Most of the increase in individual tax receipts appears to have come from higher stock market gains and the business income of relatively wealthy taxpayers. The biggest jump was not from taxes withheld from salaries but from quarterly payments on investment gains and business earnings, which were up 20 percent this year. That was similar, though much smaller than a sharp rise in tax revenue during the stock market boom of the late 1990's, which was followed by plunges in revenue when the market bubble burst." (The full article is available here)

Now, for all the Democrats that cite President Clinton for balancing the budget, take note. According to Dick Morris, Clinton's chief political advisor at the time (eg Clinton's Rove -- "The Architect" -- for his 1996 success), the budget was balanced not because Clinton reduced spending (in most areas he did the opposite), but because of the huge increases in tax revenue from the stock market's boom. With more tax revenue, the government could afford to spend what it had been all along. Add to that a Republican-controlled House at the time which refused to approve the drastic increases in spending that Clinton wanted (which would have unbalanced the budget), and a balanced budget took form.

Then, when the stock bubble burst, the increased tax revenue that the bubble brought suddenly disappeared, returning the government to an unbalanced state -- beginning with the recession started just before Bush took office.

There are a few things that should be noted there. First, the Clinton administration's "balanced budget" was not the result of "Clintonomics." Clinton wanted to spend more, but, when Republicans retook the House in 1994, they would not let him. Their constraints, tied to a stock market boom and the tax revenues from it, were what led the budget to be balanced at all. As Wikipedia even notes, "The Republican takeover of Congress in 1994 led to a push for a balanced budget, forcing President Clinton to agree to reducing the deficit. Major economic growth and GOP led spending controls such as Welfare Reform allowed for a balanced budget (when Social Security surplus was counted as revenue) by early in Clinton's second term in 1997 - considerably earlier than what Clinton's own projections for this had indicated."

Second, the surplus only came in Clinton's SECOND term, even though the economy began heating up late into George H.W. Bush's term (too late to help him in the election), and booming early into Clinton's first term. Even with a booming economy, Clinton did not balance the budget until the beginning of his second term in office -- when Republicans in the House rejected 4 budgets in which Clinton proposed huge spending increases and only affirmed the fifth budget that Clinton sent to Congress which eliminated much of the increased spending the Clinton proposed.

Third, unlike the very end of George H.W. Bush's Presidency when the economy began to really heat up, at the very end of Clinton's Presidency the economy began to really sour. When George W. Bush came to office, it was the beginning stage of a recession. Despite this, in the past election, Democrats hammered Bush for not balancing the budget in his first term -- which Clinton could not manage to do in his first term even as the economy began to boom by the time he took office in 1993!

Fourth, the increase in tax revenues under the Clinton administration were based on a bubble. When stock prices were inflated, more money came in from capital gains tax. But those revenues could not be sustained. In essence, they were based off a huge structural gap that inevitably had to burst. Not only were they unstable, then, but they were unnatural and not based on actual economic performance. The fact was that investors though stocks were worth more than they really were worth and that they thought the economy was in better shape than it really was -- the definition of a bubble, after all, is when the price of stock diverges significantly from its actual value. Clinton's increased tax revenues were ultimately based, then, more on the faulty judgments of economic agents rather than sound economic theory.

Fifth, part of the bubble was caused by CEO's like those at Enron and Worldcom cooking their books to make it look like their companies (and therefore their stocks) were worth more than they really were. The fact that such CEO's were not as regulated as they should have been during Clinton's economic boom, and held more accountable, may have caused tax revenues to increase in the short term under Clinton, but, when the bubble burst, it also made the damage all the worse. While most liberals I've seen have blamed Bush for the actions of the CEO's (and draw all sorts of connections), the fact is that most, if not all, of the crimes they committed were during the stock market boom UNDER CLINTON.

Sixth, Clinton's success with reducing deficits, along with the shrinking deficit now under Bush, reflect victories of conservative economic theory that the budget can be balanced through increased economic activity rather than through tax hikes that reduce that hamper that activity. There's a reason why the U.S. is outperforming the E.U. these days (bringing the Euro back down and making many investors clammer back for dollars): the Europeans have the huge handicap of excessive, excessive taxes that make the competition for economic performance a no brainer. The E.U. is working with one hand tied behind its back, and the best part is that it is E.U. nations themselves, and not any outside force, that tied it. The way to reduce deficits is in large part to promote economic growth, which will naturally bring in more revenues with the tax rate remaining constant, rather than increase taxes and decrease economic activity. Yes, it sounds supply side. But there's a reason Columbia's Professor Mundell received a Nobel Prize for his theory, even if it -- like all economic theories -- has its fair share of problems.

Seventh, in probably the only point that staunch Democrats will agree on, Congressional restraint is necessary to balancing the budget too. Republicans in Congress must push the administration to reduce what has been at times reckless spending. If Congress defeated 4 of 5 budgets Clinton proposed in one year alone because of reckless spending, Congress certainly can be stricter with Bush about his own reckless spending in his budgets. That's its job, regardless of the party that controls it. And, in the end, Bush himself will look a lot better after his second term if part of his legacy is restoring a balanced budget along with economic growth after the recession, much like Clinton's legacy looks more rosy to people who lionize him for balancing the budget -- even though he fought all he could for budgets that would, had they have passed Congress, results in further deficits rather than fiscal sanity.

Finally, Republicans should recognize that, despite Democratic rhetoric, Democrats are not really interested in balancing the budget at all. If they ever retake both the White House and Congress together (G-d forbid!), you can be sure they will spend the same amount which they've always wanted to spend. After all, at the same time as Democrats blast Bush for deficits, they have attacked him for not spending enough on education (even though he increased the budget of the Department of Education by 58% in his first four years), healthcare (universal health care, right?), et al. If the Republican Party is really the party of fiscal responsibility, it must act the part now while it has the reigns and prove that, when a Party has power, it does not have to just spend more and more pork. Republicans in Congress should make Bush's budget a bit more Kosher and eliminate the pork. That, combined with the robust but more stable economic performance that has taken root over the past two years, would be a great financial legacy for this Pax Romana of Republican dominance and will set the legacy of the Republican Party for years to come.