Optimistic Budgeting

A topic I frequently discuss is how our rulers at all levels of government use methods & techniques for their financial planning that would never survive in the real world. One of the most idiotic methods they use to predict revenues is to take a windfall year, such as a few years ago when the stock market was doing well and there were tons of capital gains taxes coming in, and make the assumption that such revenues will continue forever. It's the same illogical reasoning as assuming that you will hit the jackpot on a casino slot machine every time you pull its arm, just because you won once.

That is how the Clinton Gang was able to predict Federal budget surpluses. When reality hit, and the capital gains taxes dried up, Bush is now being blamed for squandering the fictitious budget surpluses by his enemies in the JackAss Party and their propagandists in the media.

State rulers also use this optimistic extrapolation of revenues to justify new spending programs. When the predictions fail to come true, they scream about the terrible budget shortfall. However, their reaction is again different from what it would be in the real world. If you or I had planned to buy a new car based on an expected bonus from work, we would scratch that plan if the bonus didn't materialize. However, with most government programs, once they are established, they will last until eternity. The result is the need for our rulers to squeeze more money from the people, which is what they are going crazy doing right now. Chris Edwards has a good explanation of this budget gap problem on National Review Online.

KMK
- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 8/20/2002 10:36:00 AM Send this post: