NCPA - National Center for Policy Analysis


July 14, 1997

With tax revenues rolling into the Treasury at an unprecedented pace, the budget deficit could drop to zero, according to economist Allen Sinai of the Primark Decision Economics firm. But, in his view, several factors would have to come together for that to happen: it would be necessary for the economy to continue to grow at a 2.5 percent to 3 percent annual rate, unemployment would have to continue at 5 percent or lower, interest rates and inflation must remain steady, and corporate profits must continue strong.

Otherwise, he sees a deficit of about $30 billion to $35 billion by September 30, the end of the 1997 fiscal year -- a far cry, nevertheless, from the $67 billion deficit projected in early May.

So why is the deficit falling even without a budget deal?

  • Taxes paid by individuals and corporations are growing at twice the rate of the economy's annual growth -- and revenues are stronger than predicted earlier.
  • A record 129.4 million workers are getting paychecks, and 1.4 million jobs have been created this year alone; that means also that fewer people are getting welfare checks, thus cutting government spending.
  • Corporate earnings are expected to be up 14 percent to 15 percent this year and 9 percent to 10 percent next year.

Fiscal hawks caution that economic good times are not guaranteed.

Although the federal government has eliminated 400,000 jobs over the past five years, in the hawks' view this is the perfect time to redouble efforts to reign in the size and scope of federal activities. The annual deficit may be dropping, but there is still a gargantuan national debt which must be addressed.

Source: Beth Belton, "Tax Collections Windfall Shrinks Deficit," USA Today, July 14, 1997.


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