SOURCES OF DEFICIT REDUCTION : FY 1993-1996
Senate Budget Committee staff analysis
July 15, 1996
The deficit has declined markedly over the last 4 years, during a period of steady economic growth and the resolution of the thrift crisis. The FY 1996 deficit is expected to be $130 billion, versus FY 1993's $255 billion total. This raises the obvious question - what pushed the deficit lower? The Clinton administration will claim credit for the move, however, this is not really an accurate picture.
To examine the forces behind recent deficit reduction, we compared the multi-year budget forecasts that CBO made in January 1993, and traced their revisions through time. CBO's revisions are motivated by changes in technical, economic and legislative factors. We look at FY 1993, 1994, 1995 and 1996.1
When one compares the 4 year projected deficit levels with actuals, one sees that $407 billion in cumulative deficit reduction was achieved. CBO figures show that 48 percent of this fall was due to a revision in technical assumptions (notably the unwinding of the thrift crisis and slower spending in medical programs) and 13 percent was due to a rosier economic backdrop. Thus, a full 61 percent of deficit reduction is accounted for by factors other than legislative changes.
The remaining 39 percent came from legislative changes, primarily from tax hikes in OBRA-93. Of the $159 billion in legislative savings, 76 percent came from from higher tax revenues, while only a meager 17 percent came from spending restraint and 7 percent came from debt service. Furthermore, all of the net spending restraint came in 1996, under the Republican controlled Congress. In the FY 1996 appropriations process alone, Republicans were able to pare $19 billion from the deficit. Contrast this with a net spending increase of $12 billion during , FY 1993, 1994 and 1995 combined.
Thus, only 35 percent of the $407 billion in deficit reduction from FY1993-1996 can be directly linked to Clinton's legislative initiatives and debt service savings. This figure would have been even smaller if Republicans had not saved Clinton from himself. They blocked his early plan for a $16 billion stimulus plan, goaded him into offering a balanced budget and stymied his attempted government take-over of the health care system.
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