July 18 (Bloomberg) -- Bring back the Clinton administration. Well, maybe not all of it, but at least its spending habits.

While the Bush administration is celebrating the growing economy and pointing to its tax cuts as the reason for last week's news about a smaller budget deficit, there is this one glaring reality: Spending growth under George W. Bush has been almost four times as high as it was during the same period of Bill Clinton's presidency.

No two-term president in post-war U.S. history has ever presided over a spending binge this monumental in his first six years in office.

How could Bush get away with it? Easy. Everybody has been too busy squabbling over the tax cuts.

According to supply side theory, marginal tax rate cuts can pay for themselves over time because they stimulate additional growth and revenue. Last week's positive news about the budget deficit has been interpreted by some as a vindication of supply side principles, while others have called the revenue surge temporary and unimportant. Who is right?

Reversed Situation

When Bush was elected in 2000, the U.S. fiscal situation was dramatically different than today. The budget was in the black by more than $236 billion and long-term projections predicted surpluses so large that Federal Reserve Chairman Alan Greenspan fretted over what might happen if there were no more treasuries.

Now the situation is reversed. According to the budget figures released on July 13 from the Office of Management and Budget, the U.S. government will run a $333 billion deficit in 2005. One could be forgiven for believing the story that the tax cuts caused the large swing in the deficit, as it has been pounded into our consciousness by politicians and the media. As author Brian Anderson ably documents in his bestselling new book ``South Park Conservatives,'' the major TV networks regularly referred to the tax cuts as ``huge,'' ``very big,'' or ``massive'' as they were introduced.

Massachusetts Senator John Kerry centered his presidential campaign on their repeal, and his rhetoric implied that he could deliver the moon and the stars with all of the revenue he would gain by taking back the Bush tax cuts.

The Startling Numbers

This is incorrect, and profoundly so. The problem is that both parties have an incentive to misrepresent the tax cuts. The Democrats get to portray Republicans as irresponsible ideologues, and the Republicans get to pretend to deliver big changes to their supply-side base even when they are miniscule. The tax cut I received doesn't feel ``massive.'' Does yours?

Let's tune out the chatter for a minute and just do the math. One easy way to gain perspective is to compare the situation before Bush took office with today.

At the beginning of 1999, the Congressional Budget Office made (as it does every year) a 10-year projection of revenue and expenditures for the years 2000 through 2009. Since then, a number of policies have changed and the economy has surprised us.

How well did the budget office do in its 2000 projections for 2006? How far are we from where we expected to be? The numbers are startling. First, let's look at revenue.

In the 2000 forecast, the budget office expected that the U.S. Treasury would collect $2.39 trillion in 2006. In its latest forecast, it projects that revenue will be $2.21 trillion, an error of only $180 billion.

The Forecasts

With revenue advancing rapidly after 2006, the difference between the forecasts for 2000 and for today dwindles to a paltry $65 billion by 2009. In the forecasting game, such small misses are about as good as it gets. The gap is so small because economic growth surprised on the upside, delivering more revenue after the tax cuts than was expected. Supply-siders can rightly point to this as partial vindication.

The spending story is much different. The 2000 forecast expected that total outlays in 2006 would be $2.1 trillion; now the CBO expects spending to be $2.5 trillion, a ``massive'' miss. And the 2000 forecast underestimates future years by even more, with the spending for 2009 projected to be $535 billion higher than was expected just before Bush took office.

If Bush had vowed when he took office to never spend more than Clinton planned to, then the budget office would be projecting a 10-year surplus of about $3.6 trillion, even assuming that all of the Bush tax cuts are made permanent.

The Real Problem

Instead, based on Bush's proposed 2006 budget, we are looking at a 10-year deficit of $2.6 trillion. Tax cuts didn't cause the deficit. At best, they approximately paid for themselves. Spending is the true culprit.

This story changes a bit if we use forecasts from later years as our baseline. This is because the budget office dramatically increased its forecasts for economic growth and revenue before the recession of 2001. Talk about bad timing. Even the later forecasts, however, support the view that spending is the main culprit. And homeland security and defense aren't the problem.

Even if we amend the Clinton numbers to allow the homeland security and defense spending surges to occur, the budget would still have a surplus of around $2 trillion with today's revenues.

So the tax cuts may have cost a great deal less over time because they stimulated growth. But spending has been so out of control that it has offset the good news on revenue.

The conclusion is obvious: From the education bill to the prescription drug benefit to the war on terror, spending has spun out of control.

If we want to put our fiscal house in order, we need to stop arguing over taxes and bring back the Clinton spending.

Last Updated: July 18, 2005 09:58 EDT