In a development that portends an election-year battle over the budget, the White House Budget Office has projected a fiscal 1989 deficit of $143 billion, just below the level at which automatic spending cuts will be required, according to administration officials.
The administration and Congress both had hoped that they wouldn't have to face a serious budget flare-up during the campaign. Last fall, they agreed on a two-year package of spending cuts and tax increases designed to comply with the Gramm-Rudman-Hollings law.
But now, officials said, a new clash over spending and tax issues appears almost inevitable this summer if the economy weakens during the first half of the year, as nearly all forecasters expect. Slow economic growth causes the projected deficit to widen, mainly because tax revenues decline.
The Gramm-Rudman-Hollings law sets a deficit target of $136 billion for fiscal 1989, and it requires across-the-board cuts in many federal programs if the projected red ink is more than $10 billion above the target of $146 billion. Next week, President Reagan will offer a fiscal 1989 budget with a deficit of just below $130 billion, officials said. The accounting rules specified by the budget balancing law raise that estimate to $143 billion, however.
It has been clear for some time that when the spending and revenue figures are toted up at the end of fiscal 1989 -- which concludes on Sept. 30 of next year -- the deficit will probably be considerably higher than the ceiling set by Gramm-Rudman. Internal estimates by the White House Office of Management and Budget showed that the fiscal 1989 deficit will be $167 billion if the economy performs as most private forecasters expect. And the Congressional Budget Office recently projected that the fiscal 1989 deficit will be $176 billion.
But until now, there still seemed to be a good chance that Congress and the administration would avoid running afoul of Gramm-Rudman-Hollings during 1988 because of the way the law works. It puts the primary responsibility for estimating the deficit in the hands of OMB, which bases its official estimates on a forecast of the economy that is more optimistic than those of either the CBO or private forecasters.
Even OMB's forecast isn't rosy enough, however, to shrink the deficit safely below the levels at which the law kicks in. OMB's projection of $143 billion is uncomfortably close to the $146 billion "trigger" point at which the law sets cuts in motion.
The budget office must recalculate the deficit in August. By that time, officials said, the economy will probably have slowed considerably below the 2 1/4 percent growth rate predicted by OMB for the first half of 1988. This will cause the 1989 deficit to widen beyond the "trigger" point, posing a problem for Congress and the White House: They can enact new spending cuts and tax increases; they can allow automatic cuts to occur; or they can ignore the law. Each alternative involves acute political pain.