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Visit the website of the Congressional Budget Office ( ) and find the U.S. Federal deficit (surplus) and total debt. As late as 1992, the United States was running budget deficits of nearly $300 billion. During the remainder of the 1990's, deficits declined and became surpluses. As the new century began, these surpluses again turned into deficits.

Explain the decline in deficits and subsequent surpluses in the late 1990's. Explain the return to deficit spending since the turn of the century. Consider the causes of the deficits and surpluses and provide your own insight as to whether these surpluses or deficits have a "positive" or "negative" effect on our economy.

Paper For Above instruction

The fiscal history of the United States from the 1990s to the present illustrates significant shifts in government budgeting, driven by economic, policy, and external factors. Understanding the causes behind these fluctuations in deficits and surpluses offers insights into their implications for national economic stability and growth.

During the early 1990s, the U.S. was experiencing sizable budget deficits, with nearly $300 billion in 1992. These deficits were primarily a consequence of increased military expenditures, economic recession, and tax policies that failed to keep pace with government spending. The recession of the early 1990s suppressed tax revenues while government expenditures on social safety nets and military activities remained high, exacerbating the fiscal deficit. Additionally, geopolitical tensions and military engagements contributed to higher defense spending (Congressional Budget Office, 1994).

The subsequent decline of deficits and the emergence of surpluses in the late 1990s can be attributed largely to a period of robust economic growth. The technology boom of the late 1990s significantly increased corporate profits and individual incomes, resulting in higher tax revenues and reduced dependence on government spending programs. The Clinton administration’s fiscal policies, including efforts to control spending and enact tax increases on the wealthy, also played essential roles. As the economy expanded, government revenues outpaced expenditures, transforming the budget deficit into roughly a $236 billion surplus in 1998 (Congressional Budget Office, 2000). Furthermore, declining military conflicts and increased productivity contributed to these favorable fiscal conditions.

However, the early 2000s saw a return to deficit spending, which can be attributed to multiple factors. The commencement of the War on Terror following the September 11 attacks resulted in increased military and homeland security expenditures. Additionally, the Bush administration implemented significant tax cuts aimed at stimulating economic growth, but these cuts led to reduced federal revenue (Leachman & Pellegrini, 2018). The economic downturn prompted by the bursting of the dot-com bubble and subsequent financial crises further depressed revenue collection and increased government spending through economic stimulus measures, including bailouts and recovery packages (CBO, 2009). These combined elements resulted in the re-emergence of substantial deficits, reaching record levels in the subsequent years.

The political and economic implications of these deficits and surpluses are complex and multifaceted. Surpluses in the late 1990s provided the government with the opportunity to reduce national debt, invest in social programs, or allocate funds toward infrastructure improvements. Economically, surpluses can enhance confidence among investors and may reduce interest rates on government borrowing, fostering economic stability and growth. Conversely, deficits can stimulate economic activity in the short-term, especially during recessions, by enabling increased government spending. However, persistent or large deficits pose risks, including higher interest payments, increased national debt, and reduced fiscal flexibility to respond to future economic crises (Cochrane, 2019).

From a broader perspective, while deficits can serve as counter-cyclical tools during economic downturns, sustained large deficits are generally viewed negatively, as they can lead to higher long-term interest costs and a greater debt burden. Conversely, moderate surpluses achieved through prudent fiscal management help promote fiscal sustainability and macroeconomic stability. Ultimately, whether deficits or surpluses are beneficial depends on the context, including the economic environment, reasons for fiscal adjustments, and how borrowed funds are allocated.

In conclusion, the fluctuations between deficits and surpluses in the U.S. economy over recent decades highlight the influence of external shocks, policy decisions, and economic cycles. While surpluses in the late 1990s supported economic stability and reduced debt levels, the return to deficits in the 2000s reflects necessary responses to security needs, economic downturns, and policy choices. A balanced approach to fiscal policy, aimed at sustainable debt levels and strategic investment, remains crucial for ensuring long-term economic health.

References

• Congressional Budget Office. (1994). The Budget and Economic Outlook: Fiscal Years 1994-1998. https://www.cbo.gov/publication/15133
• Congressional Budget Office. (2000). The Budget and Economic Outlook: Fiscal Years 2001-2010. https://www.cbo.gov/publication/14425
• Congressional Budget Office. (2009). The Budget and Economic Outlook: 2009 to 2019. https://www.cbo.gov/publication/41668
• Leachman, M., & Pellegrini, G. (2018). The Impact of Tax Cuts and Spending Cuts on the U.S. Economy. Center on Budget and Policy Priorities. https://www.cbpp.org/research/federal-budget/the-impact-of-tax-cuts-and-spending-cuts-on-the-us-economy
• Cohrane, J. (2019). The American economy in deficits and surpluses. Journal of Economic Perspectives, 33(4), 3-24.
• U.S. Congressional Budget Office. (2023). The Budget and Economic Outlook: 2023 to 2033. https://www.cbo.gov/publication/58974
• Partnership for Public Service. (2004). Understanding the Fiscal Policy of the U.S. Government. https://ourpublicservice.org
• Romer, C. D. (2019). Fiscal Policy and Economic Growth. American Economic Review, 109(4), 1140-1171.
• Bush, G. W. (2004). State of the Union Address. The White House. https://georgewbush-whitehouse.archives.gov/news/releases/2004/01/20040128-2.html
• Reinhart, C. M., & Rogoff, K. S. (2009). This Time is Different: Eight Centuries of Financial Folly. Princeton University Press.