There is no reason to believe that economic developments so far this year will produce a lower federal budget deficit in fiscal 1987 than expected earlier, according to estimates by both Reagan administration and congressional budget analysts.
In particular, none of the analysts thought that Congress could meet the deficit target of $144 billion set by the Gramm-Rudman-Hollings deficit reduction law without significant spending cuts and possibly some tax increases.
The Congressional Budget Office estimated in February that the deficit would be more than $180 billion if defense and nondefense budget authority increases only in line with inflation, except for such entitlement programs as Social Security. While some substantially lower numbers have been used in the current budget debate, they generally have built into them assumptions about major cutbacks in some programs -- reductions that neither Congress nor President Reagan have agreed to make -- analysts said.
A recent unpublished administration estimate of the impact on federal revenue and outlays of slower economic growth, lower oil prices and inflation and falling interest rates showed a small increase in next year's deficit, an official at the Office of Management and Budget said.
That calculation assumed that economic growth, which in the last two quarters has been well below administration forecasts, gets back up to the 4 percent-per-year track on which the original fiscal 1987 estimates were based.
In the fourth quarter of 1985, the gross national product rose at only a 0.7 percent annual rate after adjustment for inflation rather than the 4.2 percent rate assumed in the budget. The Commerce Department said last week that growth in the first quarter of 1986 was at a 3.2 percent pace.
With oil prices falling, inflation has also been lower than expected. That means that current-dollar GNP, which was running at an annual rate of $4,116.7 billion in the first quarter, was around $33 billion lower than the estimate in the budget.
This shortfall, if not made up in the future, will mean a substantial loss of federal revenue, since about 90 percent of that revenue is determined by the levels of personal and corporate income that make up current-dollar GNP.
If the economy turns out to be so strong that the shortfall in growth in the past two quarters is made up later -- so that real GNP rises 4 percent between the fourth quarter of last year and the fourth quarter of 1986 -- then the deficit would shrink a bit, given all of the other favorable changes occurring, the OMB official said.
The latter, more optimistic assumption was behind remarks made earlier this week by OMB Director James C. Miller III that an improving economy would narrow the deficit.
The biggest plus so far, in terms of reducing prospective deficits, is the rapid decline in interest rates.
Both short-term and long-term rates are more than 1.5 percentage points lower than was assumed for 1986 when the budget was proposed in February.
However, at current levels, short-term rates are only about 0.5 percentage points lower and long-term rates about 1.25 percentage points lower than forecast for 1987.
Many economic forecasters expect interest rates to rise if strong economic growth resumes. If rates do not change, the effect would be to lower federal net interest payments on the national debt by around $10 billion in 1987.
Meanwhile, the loss in revenue due to lower incomes, whether as a result of lower inflation, lower growth or a combination of the two, could add more than that to the deficit. Just how much would depend on the future course of current-dollar GNP, the budget analysts said. Lower oil prices cut both ways on the budget deficit.
About the first of March, oil prices everywhere in the United States fell below the levels at which any payment of the windfall-profits tax on oil is required. That will cost about $2 billion in 1987, though some of that will be offset by higher corporate income tax payments, since the windfall tax is treated as a deductible business expense.
At the same time, the federal government will lose billions of dollars of income from the sale of oil from the national petroleum reserves, from royalty payments covering production on off-shore leases, and as a result of lower bonus payments when additional acreage is leased.
On the other hand, the federal government also is a major oil consumer, and like other consumers and businesses will be paying less for gasoline, diesel fuel, jet fuel and other products. That will reduce outlays for oil.
Whether that also reduces budget outlays will depend upon whether Congress chooses to cut spending authority accordingly or allows federal agencies, particularly the Defense Department, to use the savings to pay for other things.
The ultimate budget impact of all these economic changes also will depend on other congressional and presidential decisions, such as whether to provide a cost-of-living-adjustment for Social Security and certain other programs next January even if prices do not go up more than the 3 percent trigger point during fiscal 1986. If no COLA is paid, it would reduce the deficit by about $4 billion, analysts said.
"We are getting good results and bad results vis-a-vis the deficit," said a CBO official. "Clearly, interest rates are lower, and clearly, inflation is lower. Those are beneficial effects.
CBO has made no new estimate of the deficit and will not until August. What a reestimate would show "is completely conjectural," the official said.
Rough estimates for the House and Senate Budget panels suggest the deficit outlook has been, on balance, little changed.