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Gauges that conflict on deficit make it hard to assess the trims

By DAVID R. FRANCIS / November 30, 1987



CONGRESSIONAL and administration leaders have agreed to reduce the federal deficit this fiscal year by $30.2 billion. But a reduction from where? Asked this question, an Office of Management and Budget (OMB) official says, ``We have no real specifics on that now.''

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Pressed, the official suggests using a ``current-services estimate'' made last June for the fiscal year that started Oct. 1 of $161.4 billion. That - perhaps - would mean a deficit after the agreed-upon reductions of $131.2 billion.

The Congressional Budget Office (CBO) thought the right number to use was the ``sequestration base line'' of $179.9 billion, a figure put together in October but ``refined'' from an estimate published early in the summer. That implies a deficit of $149.7 billion.

The OMB number would mean that some progress has been made in trimming the deficit from the actual deficit of $148.01 billion in the fiscal year that ended Sept. 30. The CBO figure would mean a slight deterioration from fiscal 1987.

Neither agency expects to publish new official budget estimates, including the deficit, before late January.

Indeed, it is not known for sure whether Congress will pass the necessary legislation to carry out untouched the deal agreed to by its negotiators and the White House.

To a considerable degree, any calculation of the deficit is guesswork. Much depends on an assumption for the economy. If the economy prospers, so do government revenues.

For example, Richard F. Hokenson, an economist with Donaldson, Lufkin & Jenrette Securities Corporation, suspects the relatively optimistic OMB is more likely correct on the deficit than the usually more pessimistic CBO. The CBO calculation is based on an old forecast that the nation's output will grow a real 2.8 percent next year.

Mr. Hokenson assumes a slightly higher growth rate for gross national product - 3 percent. He hasn't altered that prediction despite the stock market crash. He figures the decline in interest rates will stimulate sales of houses and durable goods at least as much as the drop in stock wealth will hit luxury goods, especially imports.

Federal revenues in recent months have tended to come in higher than government officials had forecast. This may indicate that the 1987 GNP figures will be revised upward in mid-1988, Hokenson says.

Last week, GNP numbers were revised upward for the third quarter to a 4.1 percent annual rate from an earlier estimate of 3.8 percent.

Also on the positive side, corporate profits and personal income have shown strong gains.

Other Wall Street budget-watchers are less optimistic. Mark L. Melcher of Prudential-Bache Securities Inc. figures Congress will agree to only $23 billion of the $30 billion deficit-reduction package and that slow growth in the economy will trim revenues $8 billion, resulting in a deficit of $164 billion in fiscal 1988.

Whether deficit progress is real or not, West Germany, the Netherlands, and France took the United States deficit-reduction package as justification for reducing their interest rates last week. And West German Finance Minister Gerhard Stoltenberg said his government was looking for new ways to stimulate its domestic economy. Those measures could help sustain world growth - and to a small degree make the budget optimists more likely right.