Budget reconciliation legislation passed by Congress this summer will not only balance the budget in 2002, it likely will result in a $32 billion surplus that year, the CBO reported Tuesday.
"Indeed, the budget is projected to be in virtual balance through 2007, with the deficit or surplus below 1 percent of gross domestic product in any year," the budget office said in its latest update of the "Economic and Budget Outlook."
As reported earlier this summer, the CBO estimates the deficit will fall to $34 billion in FY97, $81 billion less than the budget office had estimated in March. The budget office said unexpected large gains in revenue pushed the deficit down. But the CBO also said the deficit will climb to $57 billion in FY98 before dropping to $36 billion in FY2001. Stretching out its estimate, the CBO said the surplus should reach $86 billion in FY2007.
However, the budget office delivered a stern warning about the years following FY2007. "Severe budgetary problems still await beyond the 10-year horizon, when the baby boomers will begin to retire and the costs of health care continue to escalate," the budget office said.
Some House Democrats, most notably House Appropriations ranking member David Obey of Wisconsin, have charged that the balanced budget deal delays large discretionary spending cuts for the final years of the plan. The CBO lends credence to that argument.
"Achieving budgetary balance in 2002 depends on adhering to new statutory limits on discretionary spending, which are quite restrictive after 2002," the budget office said, contending that it "may be difficult" for Congress and any president to enact the required cuts.
"The tough decisions on appropriated spending have yet to be made," the CBO said.
The budget office said that restraints in discretionary spending account for $53 billion of the net legislative spending reduction of $95 billion in 2002. Discretionary spending cuts will reduce the purchasing power of discretionary spending by 12 percent, when 1997 spending is compared with 2002 spending, the CBO said.
On another issue, the CBO estimated that President Clinton's line item veto of three reconciliation bill provisions would save some $394 million.
The CBO also said the cost of tax cuts rises after 2002, but that reductions in the growth of spending more than accounts for it.
The CBO estimated that real growth will average 2.3 percent through 2007 and that the unemployment rate will average 5 percent in 1997, a 24-year low.
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