July 1, 1997

Tax Cuts, Spending Cuts, and a Balanced Budget - Does This All Add Up?

The summer of 1997 has been especially active for the lawmakers of the 105th Congress, who are promising fall delivery of a three-part economic package that will (1) balance the budget by fiscal year 2002, (2) cut taxes substantially, and (3) cut outlays, mostly entitlements, by an amount sufficient to mutually accomplish the other two goals.

In the background and, so far, independently of these legislative developments, the budget deficit continues to decline, and is expected to be below $100 billion (at about $75 billion) in this fiscal year, which ends on September 30. This will be the first time that the deficit has been below $100 billion since 1981. Even though the deficit is projected to rise again in FY 1998, results of recent years have been very encouraging.

Given this background, this Update is organized into three parts answering three separate but related questions. The reader of this Update can peruse any one of the three subjects separately, or review them in order. Please NOTE: These reviews will be amended as the Congressional session proceeds and the specific content of the tax and reconciliation laws emerges. Here are the three questions:

  1. Given that no substantial legislation effecting budget totals has yet been passed, why has the deficit been declining in recent years?
  2. As of the date above, what is the current status of the tax and budget reconciliation legislation?
  3. As of the date above, what are some of the more important provisions of tax and budget reconciliation legislation, and how do they effect the budgetary outlook for the future?

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