The New York Times
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The Times reported August 8 that President Bush would like some credit for the government’s current success in moving toward a balanced budget. The article notes that when Mr. Bush decided to break his “read my lips” promise not to raise taxes, in the summer of 1990, “the budget deficit was approaching $300 billion and rising.” This is not quite accurate.
The deficit in 1989, which was the last year of the Reagan expansion, was $152 billion. It had fallen from its peak of $221 billion in 1986. The Dow Jones Industrial Average ended 1989 at 2753. The sharpest drop of the Dow that year was on the afternoon of Friday, October 13, when it fell 190 points on the news that the White House decided to postpone to 1990 its fight to cut the capital gains tax to 15%, which Mr. Bush had promised to do in his 1988 campaign. The House had passed the tax cut, but Senate Democratic leadership refused to allow the measure to come to a vote.
On October 19, in a Wall Street Journal op-ed, I noted that if the “Democrats are successful in killing the President’s proposal, the revenue gap will open up tremendously in 1990 because of the weakened economy.” NASDAQ stocks, which are more sensitive to capital gains tax than the blue chips and more representative of the broad economy, fell from 473 in September 1989 to 331 in October 1990 -- as President Bush caved in to Democratic demands and agreed to an increase in income tax with no change in capital gains tax.
As I’d warned, the weakened economy produced a 1990 deficit of $221 billion, which rose to $269 billion in 1991, and $290.4 billion in 1992. The deficit began its decline in fiscal 1993 as the Bush recession ended. The Times’ recollection that the deficit was “approaching $300 billion and rising” when Mr. Bush decided to reverse himself on taxes glosses over these critical details. There is no way history will reward the Bush administration for ending deficits that it helped create.