The Clinton/Gore Administration: Fiscal Discipline Produces the Largest Surplus in History
Today, President Clinton Will Announce the Largest Budget Surplus and the Largest Pay-Down of Debt in American History. In 1993, the Clinton/Gore Administration put in place a three-part economic strategy of fiscal discipline, investing in people, and opening markets abroad. President Clinton today highlighted information released by the Office of Management and Budget and the Department of Treasury that provides even more dramatic evidence that this strategy is working:
- Last year's (FY2000) unified budget surplus was $237 billion, the largest surplus ever.
- America has paid down $363 billion in debt held by the public over the last three years, the largest debt pay-down ever.
- The debt at the end of FY 2000 was $2.4 trillion lower than it was projected to be in the last forecast before the President's program was put in place.
- Under the President's budget, the debt held by the public will be eliminated by 2012.
LARGEST UNIFIED SURPLUS EVER AND THE ONLY ON-BUDGET SURPLUS SINCE MEDICARE WAS ESTABLISHED
- Instead of a $455 billion deficit, the surplus this year will be $237 billion. In 1992, the deficit in the federal budget was $290 billion -- the largest dollar deficit in American history. In January 1993, the Congressional Budget Office projected that the deficit would grow to $455 billion by 2000. In fact, the unified budget had a surplus of $237 billion in FY 2000 -- the third consecutive surplus and the largest surplus ever, even after adjusting for inflation. Compared with original projections, these results mean that there is $692 billion less of a government drain on the economy and $692 billion more available for private investment in this one year alone.
- Largest unified surplus as a percent of GDP since 1948. The 2000 surplus is projected to be 2.4 percent of the Gross Domestic Product (GDP) -- the largest surplus as a ratio to the GDP since 1948.
- The third consecutive year with a surplus -- for the first time in over 50 years. The surplus of $237 billion follows a surplus of $124 billion in FY 1999 and $69 billion in FY 1998. The last time America had three surpluses in a row was over fifty years ago, during 1947-49. The FY 2000 surplus marks the eighth consecutive year of fiscal improvement. This is the longest run of consecutive years of improvement in American history -- surpassing the pre-Clinton-Gore best of five straight years.
- The second consecutive surplus excluding Social Security. Excluding Social Security, the surplus was $87 billion in FY 2000. This is the first back-to-back surplus on this basis since 1956-57.
- The first on-budget surplus excluding Social Security and Medicare. The budget surplus excluding the Social Security and Medicare surpluses was $58 billion in FY 2000. This is the only budget surplus on this basis since Medicare was established in 1965.
LARGEST DEBT REDUCTION EVER
- The President's plan to eliminate the debt by 2012 remains on track. President Clinton's budget proposes to reduce the debt held by the public by $2.9 trillion over the next decade and to eliminate it on a net basis by 2012. The President's debt reduction comes from saving the entire $2.3 trillion Social Security surplus, the entire $403 billion Medicare surplus, and $192 billion of the on-budget surplus for debt reduction.
- Pay-down of $363 billion in debt over three years. In 1998 and 1999, the debt held by the public was reduced by $140 billion. The government paid down an additional $223 billion in debt held by the public this fiscal year alone. That brought the total debt pay-down to $363 billion -- the largest three-year debt pay-down in American history. In contrast, under the 12-year tenure of Presidents Reagan and Bush, the debt held by the public quadrupled.
- The debt held by the public is $2.4 trillion lower in 2000 than was projected when the President took office. In 1993, the debt held by the public was projected by the Office of Management and Budget to balloon to $5.85 trillion by 2000. Instead, shrinking deficits and the growing surpluses of the last three years brought the debt down to $3.4 trillion in FY 2000 -- $2.4 trillion less than expected. In 1993, the debt held by the public was 50 percent of GDP and projected to rise to 65 percent of GDP in 2000. Instead, it has been slashed to 35 percent of GDP and would be completely eliminated on a net basis by 2012 under the President's plan.
- Interest payments on the debt were $125 billion lower than projected. In 1993, the net interest payments on the debt held by the public were projected to grow to $348 billion in 2000. Fiscal discipline has slashed this figure by $125 billion.
REDUCING SPENDING WHILE CUTTING TAXES FOR MIDDLE-INCOME FAMILIES
- Federal spending as a share of the economy is the lowest since 1966. Spending restraint under President Clinton has brought federal spending down from 22 percent of GDP in 1992 to 18 percent of GDP in 2000 -- the lowest since 1966. At the same time, President Clinton has increased strategic investments in education, technology, and other areas that are vital to growth.
- The smallest Federal civilian workforce in 40 years. Federal civilian workforce increased from the time President Reagan took office to the time President Bush left office. In contrast, since President Clinton and Vice President Gore took office, the federal civilian workforce has been cut by 377,000 – by nearly a fifth – and is now smaller than at any time since 1960.
- While balancing the budget, running large surpluses and paying down the debt, the Clinton-Gore Administration has provided tax relief for working families. The tax cuts signed into law by the President in 1993 and 1997 -- for example, the expanded Earned Income Tax Credit, the $500 child tax credit, the $1,500 HOPE Scholarship Tax Credit, and expanded IRAs -- have reduced taxes for American working families. The total federal tax rate for middle-income families has dropped from 24.5 percent in 1992 to 22.8 percent in 1999 -- that's the lowest tax rate since 1978. For families at one-half the median income, the effective federal tax rate has been slashed from 19.8 percent in 1992 to 14.1 percent in 1999 – that's the lowest tax rate since 1968.
What Fiscal Discipline Means For America
- Lower interest rates cut mortgage payments by $2,000 for families with a $100,000 mortgage. Because of the policy of deficit and debt reduction, it is estimated that a family with a home mortgage of $100,000 might expect to save roughly $2,000 per year in mortgage payments – effectively a large tax cut.
- Lower interest rates cut car payments by $200 for families with a car loan.
- Lower interest rates cut student loan payments by $200 for a person with a typical student loan.
- Lower debt will help maintain strong economic growth. With the government no longer draining resources out of capital markets, businesses have more funds for productive investment. This has helped to fuel a real annual increase of more than 12 percent in private investment in equipment and software since 1993 -- the seventh year in a row of double-digit growth. This compares to 4.5 percent annual growth from 1981-92, a period that saw the debt held by the public quadruple.
- Rising investment has contributed to an increase in productivity. Non-farm business productivity growth has grown at a 2.9 percent average annual rate for the last four years and 5.2 percent over the last year. This compares to 1.4 percent growth from the 1970s through the early 1990s.
Under the President's Framework to Strengthen Social Security and Medicare, the Debt Held by the Public is Projected to be Eliminated on a net basis by 2012.
- Interest payments would be eliminated on the publicly held debt. Currently, we spend 12 cents of every federal dollar on interest payments. These payments, which were once projected to grow to 25 percent of all federal spending in 2012, would be eliminated under the President's plan by that time.
- Prepare for the retiring baby boomers. Paying off the debt will create room in the budget for the increased Social Security and Medicare costs of the baby boomers. It will also free up funds for investment, help keep interest rates low, and boost workers' productivity and incomes. This fiscal discipline is the best way to prepare the government, and the nation, to meet the challenge of the retirement of the baby boom generation.