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Opinion Editorial
Monday, January 19, 1998
Higher Revenues Balance Budget	On January 7, the Congressional Budget Office (CBO) released its latest budget forecast. It now shows the federal budget to be in effective balance, with a projected deficit of just $5 billion this year--a trivial percentage of an estimated $8.5 trillion gross domestic product. This represents an improvement of more than $50 billion just since September, when CBO issued its last deficit estimate (see figure). Congress and the White House are fighting to claim credit for the good news. However, neither really had much to do with it. Last March CBO estimated a deficit of $122 billion for fiscal year 1998. The effect of all the legislation passed last year, including the Balanced Budget Act of 1997, was actually to increase the deficit by $20 billion. Technical factors unrelated to changes in legislation lowered the deficit by $73 billion, while faster than expected economic growth reduced it by $65 billion. In short, more than 100 percent of the decline in the deficit had nothing to do with anything Congress or the White House did. In fact, the CBO data indicate that we would have a budget surplus of $16 billion this year, instead of a deficit of $5 billion, if there had been no legislative action on the deficit at all in 1997. Without the contribution of economic and technical factors we would continue to run deficits in the $150 billion per year range for as far as the eye can see. Virtually all of the economic and technical adjustments involve higher federal revenues. CBO estimates that revenues are $108 billion higher this year than previously estimated for these reasons. Higher growth expands incomes and the tax base, allowing more revenue to be collected with no increase in tax rates. However, revenues have risen even more than can be explained just by faster growth. This is what CBO calls a technical factor. Some of it involves higher capital gains tax revenue, resulting from the rise in the stock market, but much of it remains unexplained. According to CBO, federal receipts will hit 19.9 percent of GDP this year, up from 17.7 percent in 1992. Spending is expected to consume 20 percent of GDP, compared to 22.5 percent in 1992. Thus the deficit has fallen almost equally as the result of higher taxes and lower spending. In 1969, the last year in which the budget was balanced, revenues took 19.7 percent of GDP, while spending amounted to 19.4 percent. Balancing the federal budget is an important accomplishment, but it is not the be-all and end-all of fiscal policy. The real question is whether the budget can stay balanced for more than one year this time. Source: Bruce Bartlett (senior fellow, National Center for Policy Analysis), January 19, 1998. For CBO budget forecast http://www.cbo.gov Home |  Support Us |  All Issues |  Social Security Debate Central |  Contact Us