So the deficitthe federal budget deficitis declining sharply, more sharply than just about anyone in mainstream media anticipated. According to figures from the Office of Management and Budget, the deficit is projected to decline from $412 billion in 2004 to $333 billion in 2005, a 19 percent decline. OMB further projects, obviously with less certitude, that it will decline to $162 billion in 2008.
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If so, that will mean that George W. Bush will have more than kept his promise to cut the deficit in half in his second term. Back in February, OMB projected a 2005 deficit of $427 billion.
"The change from February's projection," writes Jonathan Weisman in the July 14 Washington Post, "is dramatic."
Dramatic, perhaps; but it should not have been so entirely unexpected. The experience of the past 15 years is that budget deficitsand surplusescan oscillate wildly. The budget deficit is after all the product of two independent variablesfederal outlays on the one hand and federal receipts on the other. Both can change sharply, and sometimes do. The table in the Economic Report of the President 2005 shows the numbers.
The deficit stood at $255 billion in fiscal 1992 (the numbers here are all in current dollars and rounded off to the nearest billion). In 1995, the new Republican majority in the House tried to pass a constitutional amendment requiring a balanced budget; President Bill Clinton opposed it and refused to commit to budget plans to reduce the deficit to zero. Nonetheless, outlays rose only slightly as a result of budgets and appropriations passed by the Republican Congress, after great controversy, and the deficit fell to $107 billion in 1996 and $22 billion in 1997. In that last year Clinton and Republican congressional leaders agreed on a budget deal that resulted in surpluses of $69 billion in 1998, $125 billion in 1999, $236 billion in 2000, and $128 billion in 2001.
Back in 1992, when Ross Perot was running for president and decrying the deficit, it was widely thought that big deficits were eternal. In retrospect that seems like nonsense. In retrospect, the 1992 deficit of $255 billion was eliminated by three things. One of those was inevitable: the ending of the savings and loan problem. For several years there were outlays in the tens of billions to pay off S&L depositors. In time they were all paid off, and the government started raking in receipts from the sale of S&L assets. So a large part, perhaps one third, of the deficit was going to disappear whoever was in office.
Democrats argue that increased receipts from the 1993 Clinton-Democratic Congress tax receipts further cut the deficit. Receipts did increase by about $100 billion in each fiscal year from 1994 to 1999, and some of this increase was due to the higher taxes on high-income taxpayers imposed by the Democrats. So give them credit for eliminating about one-third of the 1992 deficit. Credit for eliminating the other one third should go to the Republican Congress, which held down increases in outlays $41 to $51 billion in fiscal years 1996 to 1999.