A Business section article on the federal budget deficit yesterday should have said a Congressional Budget Office report which indicated that $45 billion must be cut from 1988 federal spending to meet Gramm-Rudman-Hollings deficit targets, was issued with the Office of Management and Budget. (Published 8/21/87)
In another indication of how far Congress is from meeting the deficit-reduction targets of the Gramm-Rudman-Hollings law, the Congressional Budget Office said yesterday it would take spending cuts of $45 billion -- 13 percent for defense programs and 19 percent for nondefense -- to reach the 1988 goal of a $108 billion deficit.
Because the Supreme Court last year overturned the portion of the law that triggered automatic spending cuts when projected deficit levels exceed the targets by more than $10 billion, the CBO report was little more than an admonishment. Congressional negotiators are to resume discussions on how to restructure the law when the summer recess ends after Labor Day.
For purposes of the deficit reduction law, the CBO projected a deficit for 1988 of $153.4 billion. But using traditional forecasting methods, the agency warned that the deficit was heading for $183 billion in fiscal 1988 unless spending is reduced or revenues are increased. It will climb to $192 billion in 1989 before dropping to $176 billion in 1990, the nonpartisan budget office said.
"If there are no changes, there is not much grounds for optimism," said acting CBO Director Edward M. Gramlich. "We are going to grow our way out of the deficit at a very slow rate."
For 1987, the deficit was forecast to be a lower-than-expected $157 billion, a steep decline from the $220.7 billion deficit registered for 1986.
The CBO's forecasts were significantly more pessimistic than those the Reagan administration issued earlier this week. For 1988, for instance, the administration's Office of Management and Budget said the deficit would be $161.4 billion without spending or tax changes; OMB predicted deficits of $165.9 billion for 1989 and $146.5 billion for 1990.
The CBO's deficit predictions are larger principally because its forecasts for such economic indicators as growth, inflation and unemployment are more pessimistic than those of the Reagan administration. Unemployment in calendar year 1988, for instance, is predicted to average 5.8 percent by the administration and 6.1 percent by the CBO.
The CBO said the economy will grow by an inflation-adjusted 2.6 percent in 1988 and prices will rise 5.2 percent, while the administration foresees a real growth rate of 3.5 percent and a consumer price inflation rate of 4.4 percent next year. The CBO forecast was generally more pessimistic than the predictions the budget agency issued for the economy last January.
Some special factors caused the reduction in the deficit from 1986 to 1987, the CBO said. The tax-revision law approved last year produced $20 billion in additional revenue, principally because taxpayers sold extraordinary amounts of stock at the end of 1986 to take advantage of low rates for capital gains before they were repealed. And there were several one-time spending savings in 1987, such as a one-day delay in the date for military pay and sales of some government assets, that will not be repeated in later years.
Tax revision will reduce revenue collections in 1988 to $12 billion less than if the tax code had not been changed, and the end of the one-time spending savings will cause discretionary nondefense outlays to rise by 12 percent, the CBO said. Government payments of interest will rise by 9 percent next year as a result of higher interest rates and a larger national debt to finance.
The gap between the deficit projections of the CBO and the OMB for 1988 was $22 billion under the two agencies' "baseline" projections, and even larger in the Gramm-Rudman-Hollings report, issued by the two agencies together.
The CBO's deficit using the Gramm-Rudman-Hollings assumptions and calculations was $33.1 billion more than the OMB forecast. More than $16 billion of that gap was due to what Gramlich called "conceptual differences" in counting certain spending programs; the remainder was caused by different economic assumptions.