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![handle is hein.tera/crstax0424 and id is 1 raw text is: 98-96 E
Updated July 23, 1998
Budget Surpluses: Economic Effects of Debt
Repayment, Tax Cuts, or Spending - An
Overview
William Cox
Senior Specialist in Economic Policy
Economics Division
Summary
Upfldated projectionis released on July 15 by the C'ongressionial Bu1-dget Office (CBO3)
inicaI te buidget surp11luses r-ising( fromr $63 billioni (0.9% of GDP) in FY'1998 to mrore
thanl $100 billioni ( 1.30010 t 1.5%)(' of GD)P) fromi- FY2002 thirouigh FY2005 anid over $200
billionl (1% to 1.9%)(,) fromr FY2006 thriioug(h FY21008.' Tax cuits or speniding in1creases
niow being, discu~ssed wVoutd erode these estimate][s. SurpI)luses woldIC ICicase nationalt
savIig, reduce federal debt arid release funids for use by pivNate iNvestors anid othier
levels of goverrnmlent. Part wNould be tranisferred abroad, but domITestic investmrenit should
rise by a siZeabhle fractionI Of the surpI)luses, andI economi11c gr1OwthI shoul1d quickeni
sll-ihtly. TranisferinMg surpluses to Social Secui-ty or' to relalted retirem'lent aIccoutts
cold hiave mu1Lch the Sam11e effect. If projected surpluses occurred, the initerest shiare of
federal ouitlay s anid the federal-debt/GD)P ratio Nvouild dleclinie by 2006 to belowN the
lev ets of the miid-1I970s.
Etimina1Lting1 surp-1luses throu~gh tax cuts would channrel funids partly to icreased
con1sumpIItion,. but the in1terest Share of federal ou-tlays andIC thle debt/GD)P raLtio wold fal
substanitially w\ith balaniced budgets eveni w\iout surp-I)luses. Eliminating11'( sulu)Lses
through-d increases (or smraller cuits) InI federal enititlemrenit speniding w\ould foster
con1supion,11101 bu)t uIsing thlemr to funrd ]INvestmlenit projects could boost econiomric growtlh
somrew\hat, pr)iovided thiat the iNvestmrenits hiad social rates of retuirnrivINalinig those of
private InvestmletS. Surp-11luSes are explected to vanish aIfter 2010: tax Cuts or spenid Ing
boosts no0t thlen rep~eated Or offset w\oldI Iicrease ftutre deficits.
After three decades of federal budget deficits, analysts now foresee a possibility of
several years of black ink on the federal bottom line. Under current policy C130 projects
surpluses just under l1% of GDP for this and the next 3 fiscal years, followed by larger
'This report presents an overview of CRS Report 98-346, which spells out the analysis in
greater detail.
Congressional Research Service o+o The Library of Congress
CRS Report for Congress
Received through the CRS Web](ViewImageLocal?handle=hein.tera/crstax0424&div=1&collection=&method=preview&ext=.png&size=3)