Light at the End of the Tunnel or Another Illusion? The 1997 Budget Deal

Projections made after the 1997 reconciliation legislation was enacted suggest that, sometime early in the next century if not before, the nation should enjoy its first surpluses since 1969. The improved fiscal outlook, however, has little to do with the 1997 legislation and more to do with the tax increases and spending reductions enacted in 1990 and 1993, the stronger economy, and a slowdown in government health spending. While the 1997 legislation did not impose much new fiscal restraint, it did make substantial changes in Medicare’s structure and payment levels. It also made the tax code significantly more complex and modestly less equitable without doing much to stimulate long-term economic growth. The surpluses that are projected for a decade beyond 2002 are vulnerable to the possible failure of policymakers to enact the discretionary spending cuts called for in the 1997 legislation, the urge of politicians to preemptively commit the projected surpluses to tax cuts and program expansions, and the possibility of prolonged economic weakness.