NCPA - National Center for Policy Analysis

Higher Income Cuts Budget Deficit

April 22, 1997

Thanks to higher incomes, a sharp increase in individual tax receipts significantly reduced the federal budget deficit in the first six months of the 1997 fiscal year.

  • The gap contracted 13 percent for the six months ended March 31 to $111.28 billion from $127.71 billion the year before, according to the Treasury Department.
  • Individual tax receipts rose to $360.47 billion from $332.62 billion a year earlier, as the robust economy helped to boost incomes.
  • The Clinton administration had earlier projected a deficit of $125.59 billion, while the Congressional Budget Office forecast a gap of $112 billion for the full fiscal year -- estimates which are widely expected to be scaled back.
  • Some private economists are forecasting a deficit of somewhere between $75 billion and $90 billion for fiscal 1997.

The deficit for the six months ended March 31 is usually wider than the deficit recorded for the remainder of the fiscal year, since many taxpayers do not file their returns until April.

Both the White House and Congress based their forecasts on the assumption of an inflation-adjusted gross domestic product growth rate of 2.2 percent for the year. Private sector economists are now putting that figure at about 2.8 percent.

James E. Glassman, an economist at Chase Securities, Inc., has pointed out that a $90 billion deficit would equal 1.1 percent of GDP -- the smallest relative to the size of the economy since 1974.

Source: Jacob M. Schlesinger, "Boost in Individual Tax Receipts Helped Cut Budget Deficit in Fiscal First Half," Wall Street Journal, April 22, 1997.


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