NCPA - National Center for Policy Analysis

Budget Projections Come and Go

August 27, 2001

Surplus projections have varied greatly over the past few years, notes Bruce Bartlett. The projected fiscal year 2001 surplus has declined from $281 billion in February to $158 billion. The fact that estimates of this year's surplus have fallen are mainly due to slowing economic growth, not the Bush tax cut.

  • In 1995, the first year in which the budget contained estimates for FY2001, President Bill Clinton expected a budget DEFICIT of $193 billion this year (see figure,gif).
  • Last year's Mid-Session Review put the surplus for 2001 at $44 billion.
  • In his last budget, in January 2001, Clinton put the surplus at $256 billion, subsequently upped to $281 billion by the incoming Bush Administration.

The record shows how tax cuts affect budget estimates:

  • In early 1997, before passage of the 1997 tax cut, the White House saw a budget surplus in 2001 of $108 billion.
  • After passage of the 1997 tax cut -- which lowered capital gains tax rates -- it lowered its estimate to just $7 billion, reflecting its belief that tax cuts only lower revenues, without having any supply-side effects.
  • A few month later, however, the Clinton Administration raised its surplus estimate for 2001 to $28 billion, then to $83 billion, and then again to $134 billion.

In short, between February 1997 and February 1999, the Clinton Administration RAISED its surplus estimate for 2001 despite passage of a large tax cut.

Of course, they attributed this remarkable fiscal turnaround to factors completely unrelated to the tax cut. Growth just became faster all by itself and revenues would have been even larger had the tax cut not been enacted, they maintain.

Revenue projections will increase in future years, as the highly growth-stimulative tax rate reductions kick in.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, August 27, 2001.


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