Treasury Secretary John Snow On “The Deficit”
By Justin Gardner | Related entries in Economy, HistorySorry, but this looks like some “fuzzy math” to me…
Dec. 21 (Bloomberg) — President Bill Clinton left office in 2001 with a federal budget surplus of $127 billion. President George Bush ran a deficit of $319 billion in 2005. So who deserves more credit for fighting red ink?No question, says Treasury Secretary John Snow: It’s his boss, Bush. Sipping a latte at a Starbucks coffee shop with reporters in Washington two days ago, he said that “the president’s legacy will be one of having significantly reduced the deficit in his time,” and said Clinton’s budget was a “mirage” and “wasn’t a real surplus.”
Snow said the Clinton surplus was inflated by a stock-price bubble and that Bush will be remembered for cutting the gap from a record $412 billion in the 2004 fiscal year.
“Snow’s comment would be laughable if it weren’t so pathetically and obviously inaccurate,” said Thomas Mann, a political analyst at the Brookings Institution, a policy research group in Washington. Colleague William Gale, who worked on the Council of Economic Advisers under President George H.W. Bush, said calling members of the current administration “deficit-fighters is completely at odds with all of their policies.”
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.
To say that Clinton’s surplus was a spectre and Bush’s deficit spending is a boon seems like some rather bad accounting. How can these numbers be so off?
Moreover, Gale said, the administration used the same Clinton-era forecasts to justify its tax cuts in 2001. Since taking office, Bush pushed through tax cuts totaling $1.85 trillion and raised government spending 23 percent in his first four years in office to $2.29 trillion.After the Sept. 11 terrorist attacks, the U.S. invaded Afghanistan and later Iraq. Defense spending rose 48 percent to $454 billion in 2004, according to the non-partisan Congressional Budget Office.
Discretionary spending under Bush rose from $649.3 billion in 2001 to $895 billion in 2004, CBO figures show. Discretionary spending also rose as a share of the economy, from 6.5 percent in 2001 to 7.7 percent in 2004.
“The surpluses in the late ’90s weren’t a mirage, and as the deficits of the last few years grow even larger with the erosion of budget discipline, they won’t be a mirage either,” said Chris Rupkey, senior financial economist at Bank of Tokyo Mitsubishi Ltd. in New York. “About the only thing you can say in the administration’s favor is that a fast-growing economy of over $13 trillion covers up a lot of mistakes.”
Simply put, this type of addition and subtraction doesn’t make any sense to me. I’ve been told time and time again that supply-side economics, while good in the short term, has pretty far-reaching and harmful effects for our economy in the long run.
All I do know is that many fiscal conservatives aren’t happy with Bush’s spending agenda, and that speaks volumes.
So who’s right?
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December 22nd, 2005 at 3:00 pm
200 billion in tax cuts. A large across the board increase in spending. A Medicare drug bill which hasn’t taken effect, but is estimated to run a much larger deficit, much faster than all of Social Security.
The slowdown in the economy did hurt the budget, but despite massive fiscal and monetary stimulus the recovery has been anemic. And the loose cash has pushed housing prices high and kept stocks well above historical averages. A recession could collapse these markets and cause a far greater loss of wealth than the tax cuts saved.
And of course fiscal responses to recession are dodgy because of the deficit.
Snow and others have taken the position that we’ve never come out of a recession before that the only reason we have this tepid recovery is tax cuts. Not true. And real average wages fell in the last year.
December 22nd, 2005 at 3:58 pm
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.
Snow claims that Clinton’s budget surplus was a “mirage.” McKelvey says that even if you adjust the deficit number to take into account the exceptionally large amount of caplital gains tax payments in 2000, Clinton would have still had a budget surplus of $147 billion that year. Sounds to me like McKelvey rejected Snow’s claim pretty soundly. But that doesn’t stop Alison Fitzgerald, the reporter writing the story, from pretending that McKelvey is supporting Snow’s view.
Reporters are obligated to try to get both sides of the story. Snow’s views are sufficiently wacky that it is no surprise that Fitzgerald’s attempts to find someone who aggreed with him were unsuccessful. But the proper way for a reporter to deal with this type of situation is to report the story honestly, not to pretend that there are people on both sides of the issue in order to create the impression of balanced reporting.
December 22nd, 2005 at 6:38 pm
I think that it’s legitimate to ding Clinton’s financial performance due to the stock market bubble. I think the Bush people might just be overdoing it though.
December 27th, 2005 at 6:19 am
[...] Still believe in the miracle of supply side economics? Still believe what John Snow believes? [...]