Economic Report President

throughout that decade of peace and economic expansion, and thenworsened in the 1990-91 recession (Chart 1-3). In 1992 outlaysexceeded receipts by $290 billion, or 4.7 percent of GDP. When thePresident took office in January 1993, the deficit was projected toreach almost $400 billion in 1998 and over $600 billion in 2003,assuming no change in policy. By 1998, however, receipts exceededoutlays by $69 billion, or 0.8 percent of GDP. (All references to yearsin this section are fiscal years running from October throughSeptember, unless otherwise noted.)Chart 1-3 The Federal Budget Balance, 1946-98After a period of persistent large deficits in the 1980s, the Federal budget surplus in1998 was the largest as a share of GDP since 1957.Percent of GDP6420-2-4-6-81946 1952 1958 1964 1970 1976 1982 1988 1994Fiscal yearsSource: Office of Management and Budget.Between 1992 and 1998 the Federal budget balance improved byabout 5½ percent of GDP. In an accounting sense, this dramaticchange is attributable in roughly equal parts to an increase in receiptsand a decline in outlays, both as shares of GDP. More fundamentally,three forces have been at work: policy changes, faster-than-anticipatedeconomic growth, and higher-than-expected tax revenues, even afteradjusting for faster economic growth.In 1993 the President and the Congress enacted a deficit reductionpackage designed to cut over $500 billion from the deficits expected toaccumulate over the following 5 years. The program slowed the growthof entitlements and extended the caps on discretionary spending put inplace in 1990. It raised the tax rates of only the 1.2 percent of taxpayerswith the highest incomes, while cutting taxes for 15 million workingfamilies. Four years later the President and the Congress finished29