The `Clinton Effect' Could Shave Next Year's Federal Deficit

In late 1986, when tax-reform legislation raised the capital-gains tax rate, taxpayers reacted by unleashing a tidal wave of asset sales to take advantage mf the lower tax rate that was about to expire. As a result, the tax take on capital gains soared by as much as $30 billion in early 1987, helping to cut the deficit that year.

Now, speculation is focusing on a similar "Clinton effect" early next year. Because tax rates on high-income individuals are likely to be raised, financial advisers have been telling their customers to push income into 1992. Meanwhile, high corporate executives are said to be exercising stock options for similar reasons, and a number of companies have unveiled plans to pay bonuses in December rather than early in 1993.

No one expects anything like the 1987 tax bonanza. But any one-time jump in receipts would improve the 1993 budget picture (at the expense of later years). At the least, a "Clinton effect" is likely to cut the Treasury's borrowing needs in next year's second quarter, when such needs are expected to be reduced anyhow because lower withholding rules put into effect in 1992 promise to cut tax refunds in early 1993 by an estimated $20 billion.

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