The last time anyone could remember the federal government taking in more money than it spent, Hey, Jude was a fresh, new song. For a generation, persistent and mounting budget deficits had been the order of the day. Eventually, government became so burdened by red ink that almost everyone agreed it was time to cut, cut and cut some more. And then, quicker than even the experts had predicted, the deficits melted away. A strange, new debate broke out: how to spend the surplus.
Sound familiar? It could apply to Ottawa, but it is also the story of Washington’s threedecade-long struggle to get its fiscal house in order. The U.S. federal budget was last balanced in 1969, under President Richard Nixon. Ever since, through the inflationary 1970s, the arms race of the 1980s and the recession of the early 1990s, Washington went deeper and deeper into the red—with
its deficit peaking at a staggering $410 billion in 1992. The budget proposal that President Bill Clinton presented on Feb. 2 turns all that around. For the next fiscal year, which begins this October and runs through September, 1999, it projects a tiny surplus of $13.5 billion on total spending of $2.4 trillion. Further, it forecasts surpluses totalling $1.4 trillion over the next decade— the equivalent of the so-called fiscal dividend that Finance Minister Paul Martin has promised to Canadians.
The American deficit, like the Canadian, has disappeared quicker than expected.
(As recently as last August, the budget deal that Clinton eventually reached with the Republican-controlled Congress predicted a balanced budget only by the year 2002.) The reasons, too, are similar. A booming economy has poured more tax revenue into government coffers, even as spending has been slashed on such safety-net programs
as unemployment insurance. And the end of the Cold War allowed the United States to lower military spending from 26 per cent of its budget in 1989 to just 15 per cent now.
Politically, the end of deficits has allowed Clinton to put forward a raft of new proposals, including funding for 100,000 new teachers and tax credits for child care—paid for out of new revenue from higher taxes on tobacco. He argues that surpluses should first be put aside to shore up the American social security system, which faces strains as the baby-boom generation starts to retire after 2010. Republicans, though, are badly divided over what to do with the unexpected windfall. A few support new spending, some want to pay down the national debt of $7.5 trillion, and many favor cutting taxes. They and the White House face months of squabbling before a final budget deal is reached. But as Senator Max Baucus, a Democrat from Montana, put it last week: “It’s a wonderful problem to have.”
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