Wednesday, December 21, 2005

The "Not A Shred Of Credibility Left" award goes to...

John Snow!! OK, try this:

The Clinton surplus was inflated by a stock-price bubble... "You're going to make a lot of mistakes if you forecast based on a bubble," [Snow] said. "Bubbles burst."

Snow has some support for his view. "Capital gains receipts were unusually high'' during the last years of the Clinton administration, said Ed McKelvey, senior U.S. economist at Goldman, Sachs & Co. in New York. He estimated that when the budget surplus reached a peak of $237 billion in 2000, capital gains tax payments were about $90 billion higher than the norm for the early-to-mid 1990s.


Let's accept those figures and normalize them for the excessive activity at the height of the bubble... so that'd be... let's see... $237 billion.... minus $90 billion... carry the 12... and that gives us.... $147 billion! Why that's hardly a surplus at all! The Bush Administration can cut $147 billion in taxes without any discussion at all!

Of course, Snow doesn't acknowledge that the government's recent success in reducing the size of the deficit is owed at least in part to a similar "bubble", one based not on soaring stock prices, but instead on a provision in the tax code that will effect this year and this year only. As the Bloomberg article notes: "After reaching a record in 2004, the deficit fell by $94 billion in the budget year that ended Sept. 30 as tax receipts soared." That is fueled by taxes on hundreds of billions of dollars in profits repatriated by U.S.-based companies. These funds had been sheltered overseas, but this "penalty vacation" allowed companies to drag in all that cash over the period of a year.

Here's the problem: they won't be able to do that next year. And even if they could, they won't have years and years of profits sheltered to bring in. So the only year that the deficit didn't get worse under Bush, it was only due to... well, I guess they'd be technically correct in saying that it's not a bubble, but as to the underlying characteristic criticized by Snow, namely that you'll make a lot of mistakes if you forecast based on something that'll go away, that remains the same.

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