Knowing the score.

IN mid-July, the Office of Management and Budget (OMB) provided an updated look at our fiscal situation. It included a new deficit figure of $296 billion, down considerably from the February estimate of $423 billion. The new figure, which reflects large revenue gains, has provided ammunition to Democrats and Republicans alike.

Democrats have criticized the figure, complaining that $296 billion is still a big deficit. Many Republicans, however, have celebrated the reduced deficit figures as a vindication of Bush's tax policies and supply-side economics more generally. What the revenue surge proves, says Judd Gregg, the chairman of the Senate Budget Committee, is that "bold pro-growth tax policies enacted by Congress and the president have sparked unprecedented economic growth."

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Who is right? In order to tell, one would need to compare the growth that occurred after the tax cuts to the growth that would have occurred in their absence. Such a comparison is naturally quite speculative. One place to start would be to look at the revenue that past forecasters expected to have in 2007 when they did not know about the tax cuts that ultimately arrived.

The nearby graph shows the evolution of forecasts for 2007 revenue, beginning with the first such forecast, made in 1997. The line across the graph indicates the amount of revenue we currently expect the government to receive in 2007, and each bar indicates the forecast for 2007 made in the indicated year. In 1997, the Congressional Budget Office (CBO) forecast that revenue would be $2.333 trillion in 2007. The latest OMB projection for 2007 is $2.459 trillion, significantly higher. The difference might suggest that the tax cuts, which were not anticipated in 1997, have more than paid for themselves--if the 1997 forecast is a good estimate of what would have happened absent the tax cuts. On the other hand, revenue in 2007 is now expected to be less than the $2.816 trillion the CBO expected 2007 would deliver when it made this rosy forecast in 2001.

Why did the forecasts bounce around so much? There are many reasons, but the most important is that the CBO raised its GDP growth (and revenue) assumptions enormously just as the 2001 recession was beginning. Whoops. That error greatly inflated revenue forecasts and gave the Democrats their soundbites. The CBO's failure to spot the recession makes the 2001 forecast number a bad one to use as a baseline. If we wind back a couple of years, then revenues are currently about what was expected.

In other words, a reasonable forecast from the late 1990s was matched, despite the fact that there was an unexpected recession in 2001. If growth in the early Bush years was less than expected, it had to be better than expected thereafter. Better than expected, that is, in the years affected by the tax cuts.