In the black: explanations for the federal budget surplus

Abstract

When Bill Clinton was elected president in 1992, the United States had the largest peacetime budget deficit in the nation’s history. By 1998, however, the federal government produced a budget surplus for the first time since 1969 and in 2000 the federal government had a surplus of a staggering $232 billion, the eighth consecutive year with a declining deficit or increased surplus. So how has the federal government suddenly found itself in the black? Spending cuts have played only a relatively minor role in the reduction of the federal budget deficit compared to revenue increases. The creation of federal budget surplus is a result of the fact that the federal government is taking in considerably more revenue due to the combination of the progressive nature of the tax increases of the 1993 Budget Reconciliation Bill coupled with a very strong economy. As a result of the 1993 Budget Reconciliation Bill, the individual income tax revenue received by the federal government from those making over $100,000 increased over 108% in the 5 years after the tax provisions of the 1993 Budget became law.