When Bill Clinton took office in January 1993, the federal budget deficit was projected to be $310 billion that year, or about 5 percent of GDP. The Congressional Budget Office was also projecting that five years later, in 1998, the federal budget would still be in the red to the tune of $357 billion, or 4.5 percent of GDP. At the time, the CBO called the deficit outlook, “grim.”
Five years later, the United States enjoyed its first federal budget surplus in nearly 30 years—an incredible turnaround given the bleak projections at the beginning of the Clinton administration. Who, or what, was responsible for the more than $360 billion fiscal improvement? Was it President Clinton who deserves the credit as is widely believed? Or is it, as recently claimed by then-Speaker of the House Newt Gingrich, he, who by shutting down the government in 1995, eventually forced the budget into the black?
There are, indeed, two main heroes in the story of the remarkable budget surplus of 1998, but neither of them are Newt Gingrich or his Republican Congress. It turns out that their contribution to deficit reduction did more harm than good. No, the true heroes of deficit reduction were, first, President Clinton, whose 1993 budget—passed without a single Republican vote—raised taxes on the wealthy and dramatically altered the nation’s fiscal path, and second, a steadily improving economy. Those two factors, and particularly the interaction between them, account for virtually the entire fiscal improvement. Contrary to the Gingrich assertion, legislation passed by the Republican-led Congress of 1995 through 1997 combined to actually worsen the fiscal situation—albeit slightly.
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