NCPA - National Center for Policy Analysis

Why The Budget Is In Surplus, And Where It Will Go

October 14, 1998

In the fiscal year just ended, the federal government took in more money than it spent for the first time since 1969. The Congressional Budget Office now estimates the surplus for FY 1998 will turn out to be $71 billion -- the largest surplus in dollar terms in history and the largest as percentage of gross domestic product since 1957.

Economist James K. Glassman says there are three reasons for the surplus:

  • Spending was restrained -- although it increased 25 percent between 1992 and 1998, from $1.38 trillion to $1.65 trillion, or more than inflation plus population growth.
  • Defense spending was cut from $295 billion in 1989 to just $255 billion in 1998 -- or by three-eighths in real, inflation-adjusted terms.
  • Tax revenues increased from $1.09 trillion in 1992 to $1.72 trillion in 1998, an increase of 58 percent, or 8 percent a year, at a time when inflation rose just 16 percent, or 2.5 percent per year.

The danger, warns Glassman, is that just as the budget deficit put a cap on spending, the surplus could take it off. Congress and the president have already enacted a massive highway spending bill, boosted education spending and are preparing to add "emergency spending" for Bosnia and farmers.

And without a tax cut, coupled with reductions in interest rates by the Federal Reserve, he says a recession will tilt the precarious fiscal balance back toward deficits again.

Source: James K. Glassman (American Enterprise Institute), "Budget Surplus: Without a Tax Cut, This Surprise Could Pose Danger," Dallas Morning News, October 14, 1998.


Browse more articles on Tax and Spending Issues