Re: Bush, Still Wrong

Via Andrew Sullivan, this TNR article by Jonathan Chait, tears into Hennessy's misguided attempt to rehabilitate Bush's fiscal policies.

Only subscribers can comment on TNR. So here is the comment:

Hennessy wrote:

You can see that budget deficits during President Clinton’s eight years averaged 0.8 percent of GDP. Clinton folks will tell you this is because of his brilliant policies, and in particular the 1993 budget law. I think most of it is the result of tech bubble-induced higher capital gains revenues causing total taxes to surge to record levels.

and Chait writes:

So, okay. Hennessey discounts low deficits under Clinton because the stock bubble helped cause them. I think there's a lot of truth to that but far less than Hennessey does.

We do not have to guess about this. We have the Congressional Budget Office numbers for the revenues the Federal Government received from the capital gains tax. This from a 2002 publication of theirs.

During the Clinton years, the receipts from the capital gains tax in billions of dollars were:
(fiscal year)
1992 - 27 (billion dollars) - 6% of income taxes
1993 - 32 - 6%
1994 - 36 - 7%
1995 - 40 - 7%
1996 - 54 - 8%
1997 - 72 - 10%
1998 - 84 - 10%
1999 - 99 - 11%
2000 -121 - 12%

This other CBO page tells us that the budget surplus in 2000 was $236 billion - so capital gains taxes accounted for half of the surplus. But notice that capital gains taxes went up by a factor of 4 in absolute terms (27 to 121 billion) while only a factor of 2 in terms of percent of the income tax (6% to 12%) - which means that income tax revenue was quite potent in creating the surplus (estimated 450 billion to 1008 billion).