Economic Snapshot | Budget, Taxes, and Public Investment

The budget surplus: now you don’t see it… then you do

A weekly presentation of downloadable charts and short analyses designed to graphically illustrate important economic issues. Updated every Wednesday.

Snapshot for September 12, 2001.

The budget surplus: now you don’t see it… then you do
You may have heard that the surplus has disappeared, and that the bad economy is the source of the problem. But neither is true. There is still plenty of surplus left, though it is diminished, and the recently enacted tax cuts, rather than the slowing economy, are mostly to blame.

The chart below, based on the latest projections (as of September 2001) from the Congressional Budget Office, illustrates the impact of the tax cuts and the economy on the federal budget for fiscal years 2001-11.

The budget surplus and effects of tax cuts, economic slowdown, 2001-11

The first bar for each year shows the Social Security trust fund surplus. It starts high ($162 billion this year) and increases smartly through 2011 to $345 billion-it alone is sufficient to effectively eliminate the entire federal debt. The second bar shows the federal budget surplus, not counting Social Security, as of last May. (This May number does not include the effects of the Bush tax cut and the bad economic news over the summer.) The third bar shows the reductions in the surplus due to the tax cut and associated interest payments, and the fourth bar shows the effects of the economic slowdown plus some relatively small technical changes in the projections.

In all but one year (2002) the impact of the tax cut is larger-usually much larger-than the impact of the slowing economy.

In fiscal years 2001-04, the third and fourth bars-tax cuts and the slowing economy-do in fact erase the on-budget surplus, though never by much (and the sizable trust fund surplus remains). Thus, it is not true that legislative actions taken to date, even taking the economy into consideration, have “wiped out the surplus.” By FY 2011, the combined budget surplus is $628 billion. If the surpluses were devoted to debt reduction, by 2010 the federal debt would be eliminated.

This week’s Snapshot by EPI economist Max B. Sawicky.

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