How the federal government's fiscal health has improved! As recently as 1992, the United States experienced its largest ever current-dollar annual unified budget deficit of $290 billion. At the close of its last fiscal year, on September 30 1999, the nation's government recorded a budget surplus of $124 billion. More significantly, the Congressional Budget Office (CBO) has projected healthy on—budget surpluses—that is, no money will have to be taken out of the Social Security trust fund and revenues will still exceed expenditures—well into the second decade of the new century.

The causes of this turnaround are well understood. The record-long economic expansion of the 1990s has boosted revenues dramatically, the end of the Cold War lowered the demand for defense spending, and the budget legislation of 1990, 1993, and 1997 generally cut spending and raised taxes (Parks 2000; Schick 2000).

What Washington does with the extra money depends greatly on electoral outcomes over the coming years. Congressional Republicans—along with their party's presidential candidate, Texas Governor George W. Bush—have promised tax cuts, while Democrats have called for higher levels of domestic discretionary spending. But there are areas of agreement. Both parties wish to protect the Social Security trust fund in a so-called “lock box” and both have expressed their commitment to pay off the publicly-held debt. It is likely, therefore, that future incarnations of divided government might protect the surplus by producing a default fiscal policy based primarily on these two proposals.