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Budget Background: A Decade of Black Ink?
Updated: February 5, 2000 The annual debate over the federal budget begins this year with familiar arguments over what to spend, what to give back, and what amount to use to repay the trillions of dollars of debt that accumulated during decades of deficits. President Clinton, his would-be successors and leaders from both parties in Congress are all offering election-year tax and spending plans, each of which is based on complicated economic assumptions and forecasts. This taxpayer's guide attempts to make some sense of the numbers.
Deficits are the gap between what the government takes in and what the government spends each year. When the government takes in more than it spends, it creates a surplus.
Setting aside the money generated by Social Security taxes and the Postal Service, the government took in $1 billion more than it spent in the 1999 fiscal year, which ended in October. The Congressional Budget Office (CBO) estimates that number will be $23 billion in the current fiscal year. That is 0.2 percent of the gross domestic product a measure economists prefer because it allows for better comparisons from year to year.
CBO's most conservative estimates assume that spending on programs whose appropriations are controlled by Congress will only grow at the rate of inflation. Under that scenario, surpluses will increase over the next 10 years to $838 billion. Other estimates, which assume that spending will be capped at this year's amount, project even higher surpluses over 10 years almost $1.9 trillion would leave more room for tax cuts or new government programs.
The Clinton administration's projections, which the Office of Management and Budget will release with the president's budget on Feb. 7, are expected to be at least as optimistic.
President Clinton and many in Congress declared the budget balanced in 1998, but that year's trumpeted $70 billion surplus took into account revenue from Social Security taxes. Leaders of both parties have since decided to wall off that money in their annual budget discussions. Counting Social Security revenue, projected surpluses over the next decade would top $2.3 trillion.
The last balanced budget was in 1969, the end of Lyndon Johnson's administration and the start of Richard M. Nixon's first year in the White House. Deficits grew dramatically in the 1970s and 1980s, peaking in 1992 at $290 billion or 4.7 percent of the gross domestic product. (Excluding Social Security taxes, the amount was actally far higher.) A combination of increased spending including social and military programs and lower tax rates drove up deficits. Economic factors, including two recessions, also contributed to the spikes.
The deficit began shrinking in 1992, mostly thanks to economic growth following the recession of 1990-1991 and a corresponding increase in federal tax revenue. President Clinton's narrowly passed 1993 tax-and-spending plan also contributed, as did a 1990 deficit-cutting deal championed by then-president George Bush. Further spending cuts advocated by congressional Republicans and slowed growth in the Medicaid and Medicare programs helped, too.
Even as deficits declined, the accumulated national debt continued to grow. The current total tops $3.7 trillion. That number the debt held by the public in the form of Treasury bills is preferred by many economists because it is the number that affects interest rates. But it does not count the amount the government has borrowed from its own accounts, such as trust funds for the Social Security and Medicare programs, civil service and military retirement plans, unemployment insurance and transportation funds. Adding in those IOUs boosts the total debt to more than $5.5 trillion or more than $20,000 for every American.
The Treasury Department keeps a running, "to-the-penny" tally of the total debt on the Web at www.publicdebt.treas.gov/opd/opdpenny.htm.
The effects of nearly three decades of deficit spending are certainly easy to feel, even if citizens don't see the connection between the federal budget and their own.
When the government spends more than it takes in, it borrows money to make up the difference. Government borrowing raises interest rates, increasing the cost of student loans, car payments and mortgages. It also makes it harder for businesses to borrow money to expand.
Cutting government spending has consequences, too. Many people depend on government services, such as the giant Medicaid and Medicare health programs. And many businesses depend on government contracts. Cutting taxes, on the other hand, may increase government red ink, but it also increases the amount people have to spend, boosting the economy which ultimately fills the federal coffers.
Mark Stencel can be reached at email@example.com
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