(FORTUNE Magazine) – Wanna hear some good news about the economy? Then stop reading. Because what follows is one more reason to crawl into bed and dream of 1999.

Back in those heady days when "R" stood for Rally (and not you-know-what), state and federal budget coffers began to runneth over. Bill Clinton's last few State of the Union addresses were simply laundry lists of spending promises, based on projections of ever fatter surpluses. George Bush did much the same in his first budget speech, promising to boost government spending, cut taxes, and reduce the debt as well. There's just one problem: That surplus is going to shrink--a lot. Here's why.

From 1994 to 2000, realized capital gains increased from $135 billion to $549 billion. Government receipts from capital gains taxes also rose, netting $71 billion more in 2000 than in 1994. Even in Washington, that's serious money. To look at it another way, in fiscal 2000 capital gains receipts brought in $17 billion more than the entire non-Social Security surplus.

Now the pendulum is swinging back, and as investors hold their investments or sell for little or no gain, tax revenue will plummet. Mark Zandi and Mark McMullen of Economy.com estimate that if the S&P 500--now around 1,150--slips to 1,000, realized capital gains will fall to $210 billion this year and $170 billion next. Even if the S&P is somehow able to fight back to the 2000 level of 1,400, those numbers will still fall, to $375 billion and $320 billion, respectively. The tax hit is significant. For the past three years the feds have collected about 20 cents for every dollar in realized capital gains. A drop from last year's peak to as little as $170 billion would mean a loss of some $76 billion in tax revenue.

Neither the White House budget plan nor the Congressional Budget Office makes provision for lower capital gains revenues; both projections assume stability. For the near future at least, that assumption looks very dubious. Unless a raging bull stomps the current bear, it could be years before capital gains revenues return to anything like their recent levels. If the S&P 500 starts to grow right now at its historical average of 11%, it would take three years to hit a new peak; for the Nasdaq, almost a decade. In effect, the U.S. government has a lien on a lot of wealth that has just vanished.

This is not disastrous--yet. Basically, the U.S. government's books are in good shape, with a relatively low debt- to-GDP ratio and a pension system that looks sound compared with many of Europe's. But the decline in capital gains revenues, combined with lower corporate earnings and the loss of taxes on stock options, means the fiscal outlook is not as sunny as it was even a few months ago. That will also affect state and local governments. Realized capital gains paid for a lot of SUVs and other toys, and a slump in consumer spending will mean lost sales taxes.

In short, instead of having it all--tax cuts, more spending, less debt--America is going to have to make some choices. That's not nearly as much fun as slurping up surpluses and spending them right before an election. But fair is fair: The party's over for the politicians too.