The White House today will increase its estimate of the federal budget deficit by another $5 billion to $10 billion, but the worst of the news has been released already in budget talks with congressional leaders, according to administration and congressional sources.
Office of Management and Budget Director Richard G. Darman told reporters last week that the latest figures would be only marginally higher than the most recent $159 billion deficit forecast. That figure excludes the cost of the savings and loan cleanup, which would increase the 1991 deficit to $200 billion to $227 billion, according to Darman's most recent estimates.
The numbers are measures of the size of the task facing White House and congressional negotiators in talks aimed at paring the federal budget deficit down to a manageable size. But negotiators said the cuts needed to meet legislated budget targets are so big already that the new increase won't make much difference.
According to the Gramm-Rudman-Hollings deficit reduction law, the 1991 budget deficit should not exceed $64 billion. If the budget talks fail to come within $10 billion of that target, automatic budget cuts take effect Oct. 15.
Congressional leaders and administration officials said they expect the budget talks to produce $50 billion to $60 billion in cuts and an adjustment in the Gramm-Rudman-Hollings targets.
The economic and budget numbers released today also will show just how wide of the deficit mark the government shot during this fiscal year, which ends Sept. 30. Because of a loophole in the Gramm-Rudman-Hollings law, Congress and the administration can increase spending during the fiscal year. Even though Congress and the administration came up with a budget plan that met the 1990 Gramm-Rudman-Hollings target of a $100 billion deficit, the actual deficit will come in at roughly twice that figure, according to the Office of Management and Budget.
A big part of the reason will be higher-than-expected spending on the cleanup of the ailing savings and loan industry. The government expects that to cost $40 billion to $50 billion this year.
Slower growth than expected has also thrown off earlier deficit estimates. Sluggish corporate earnings led to lower tax revenue. Talk of a possible cut in the capital gains tax for next year encouraged many to postpone profit-taking and also lowered federal tax receipts.
The government also will release updated economic forecasts, though most of those have already been released by the president's Council of Economic Advisers. The estimates of interest rates and inflation rates for the 1991 fiscal year have been raised.
Michael J. Boskin, chairman of the council, has said the economic growth estimate for fiscal 1990 has been lowered to 2.2 percent from 2.6 percent. Boskin has also increased his assumptions for long-term interest rates to 8.5 percent, and for short-term rates to 7.7 percent.