The real federal deficit is "getting close to zero."
That's what Robert Eisner, an economist at Northwestern University, in Evanston, Ill., says. If you take account of inflation's devaluation of the national debt, he notes, the deficit amounts to only about $22 billion for fiscal year 1996.
Though controversial, Mr. Eisner's analysis makes a valid economic point. The federal debt held by the public amounts to about $3.6 trillion. Inflation, running about 3 percent, chews into the real burden to Uncle Sam of that debt by $108 billion. Thus, Eisner argues, the $108 billion should be subtracted from the anticipated deficit of $130 billion for the fiscal year ending Sept. 30, leaving only $22 billion.
That $130 billion figure was projected this week by the Congressional Budget Office. It followed a Treasury report showing that April receipts by the federal government were about $25 billion more than expected. The Office of Management and Budget at the White House is a bit more optimistic, putting this year's deficit at $125 billion.
Last fiscal year's deficit was $163 billion.
Whatever the exact deficit this year, it will have narrowed for the fourth year in a row. President Clinton can boast that he lived up to his 1992 campaign promise to halve the deficit in his first term. Congressional Republicans will be able to claim, rightly, that their budget-cutting measures had an impact.
"We are back in the era of small deficits," says Richard Kogan, a senior fellow at the Center on Budget and Policy Priorities in Washington. "We can light the candles and have a celebration."
National debt, as a proportion of gross domestic product (GDP), the nation's output of goods and services, will shrink this year. It will be less of a "burden," he notes.
The deficit peaked at $290.4 billion in fiscal 1992, which was 5 percent of GDP. This fiscal year it will be about 1.8 percent of projected GDP.
What has saved the day for Washington has been a continued moderate expansion of the economy, plus a robust stock market in 1995. A surge in individual tax payments raised the April surplus to a record $72.39 billion from $49.72 billion in the same month in 1995.
Part of that rise was due to tax refunds being made more promptly this year than last. But a good chunk of the extra revenues came from capital gains. When a mutual fund trades stock or bonds in its portfolio and makes a capital gain, shareholders must pay taxes on that amount.
"You can't avoid it," says Cynthia Latta, an economist at DRI/McGraw-Hill, a consulting firm in Lexington, Mass. Relative to GDP this year of around $7.5 trillion, the deficit is "pretty trivial," Ms. Latta says. But it remains a "big heavy" in the international capital markets, putting upward pressure on interest rates.
Federal purchases have grown only 3.2 percent through April, despite a surge of defense spending in April. Medicaid spending was up 2.6 percent from the year before, Medicare up 12 percent. But individual income-tax revenues for the seven months rose 14 percent and corporate taxes 11 percent.
Probably the 1990 and 1993 tax hikes helped boost revenue.
Some economist critics have maintained that the tax hikes on the wealthy would not be paid. The well-to-do would seek tax shelters, lessen their work effort, reduce investment in the US, and lower reported incomes. Stephen Moore at the Cato Institute, a free-market think tank in Washington, holds that these critics were "largely correct."
But Robert McIntyre, director of Citizens for Tax Justice, says there are no data yet to verify that claim. Latta's suspicion is that the tax hikes did raise revenue. Those with fat salaries, she notes, probably did not change their work ethic and did pay more taxes.
Other tax measures, such as the 1993 increase in gasoline taxes, surely did raise revenues. But in an election-year move, the Republicans in Congress this week moved to repeal the increase through Dec. 31.
Despite all the fuss over taxes, federal revenues as a percentage of GDP amount to 18.7 percent this year, not much different from the 18.5 percent at the end of the Reagan era, Mr. McIntyre says.
He is reluctant to see the deficit reduced further if it means chopping more from "the core of government." But he would like to see cuts in tax expenditures, especially the "lion's share" of these tax breaks given the affluent and corporations.
A Congress keen to cut low-income welfare entitlements ought to be at least as tough on "welfare entitlements for the well-heeled and powerful," he says. Total tax breaks in 1996 are $455 billion, more than spending on defense, roads, environment, and other "discretionary" programs combined.