NCPA - National Center for Policy Analysis

Credit Stock Market For Budget Surpluses

September 30, 1998

Economists are in near-unanimous agreement that taxes paid by investors on their stock market gains are responsible for turning decades of federal budget deficits into surpluses. Even the recent downturn in stocks may have a rosy side from the standpoint of government finance. As investors unload losing stocks, they will have to pay capital gains on the previous run-up in those stocks' values.

  • President Clinton is expected to announce -- on this, the closing day of the fiscal year -- that the 1998 surplus will approach $70 billion, topping the Congressional Budget Office's latest forecast in July of $63 billion.
  • The CBO forecasts U.S. economic growth this year of 3.4 percent -- considerably above its forecast of last September of 2.1 percent for 1998.
  • The amount of taxes the federal government took out of the private economy last year was 19.8 percent of gross domestic product -- the highest proportion since World War II.
  • Experts say that every 1 percentage point increase in economic growth contributes an extra $10 billion to the Treasury.

Source: Paul Wiseman, "Thank Bull Market for Deficit's End," USA Today, September 30, 1998.


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