July 14 (Bloomberg) -- Here's a multiple choice question:

What is the most absurd aspect of supply-siders' claim that the possible improvement in this year's budget deficit -- to an estimated $333 billion from more than $400 billion in February - -proves that deficit-exploding tax cuts are working and paying for themselves?

Here are your choices:

A) their failure to acknowledge the deep fiscal hole that President George W. Bush's policies have already put us in and the temporary nature of key factors that are contributing to this year's better-than-expected revenue;

B) their ability to attribute to the Bush tax cuts only good economic news but never any disappointing job, wage or market data; or

C) the lowering of standards that allows advocates of supply-side economics to brag about an administration that inherited four years of consecutive surpluses and now is looking at trillions of dollars of future deficits.

This is not an easy question, so it's worth exploring the possible options.

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One-Time Gains

Everyone from Congressional Budget Office Director and former Bush administration official Douglas Holtz-Eakin to Goldman Sachs Group Inc. to Economy.com say temporary factors such as a one-time corporate tax holiday for repatriated profits and the end of the temporary depreciation bonus for equipment drove much of the rise in revenue.

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Option C may be the best choice.

When Bush came into office, the CBO projected a $433 billion surplus in 2005. Even if the new projection announced yesterday by the White House comes true, it would mark a three- quarter of a trillion dollar deterioration from projections when Bush took office.

As New York University economist Nouriel Roubini has documented, when one breaks down the weakening of our fiscal position, three-quarters of it is accounted for by a collapse in government revenues. Only one-quarter was the result of increased spending.

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