The federal budget will come close to balance this year and will move into surplus by 2002, according to the latest estimates of the Congressional Budget Office (CBO). Indeed, the budget is projected to be in virtual balance through 2007, with the deficit or surplus below 1 percent of gross domestic product (GDP) in any year. By contrast, at the beginning of this year, CBO projected that the deficit would be almost 2 percent of GDP by 2002, rising slightly above that by 2007. The dramatic improvement in the fiscal outlook stems both from a brighter economic outlook and newly enacted legislation that will reduce the growth of federal spending. On July 31, the Congress completed action on two major pieces of legislation-the Taxpayer Relief and Balanced Budget Acts of 1997-which the President signed on August 5. Those two laws will directly reduce the projected federal deficit by $95 billion in 2002 and by $118 billion over the 1998-2002 period. In addition, balancing the budget will help to lower projected interest rates and improve the outlook for future economic growth.

This text analyses the debates surrounding the fiscal 1996 budget, explaining the changes that were adopted and implemented. As well as showing how to understand the budget submitted by the president to the Congress each year, this edition also contains an extended chapter on federal budget terms.