'85 budget deficit may be smaller than White House estimates
Boston — This year's federal deficit will fall more than $10 billion under what the government projects. That's what Wall Street economists Gert von der Linde and Richard F. Hokenson are predicting.
What has happened, the Donaldson, Lufkin & Jenrette economists say, is that revenues have been running higher than Office of Management and Budget (OMB) forecasts, despite the economic slowdown; spending, especially for defense, has been running lower.
Analyzing actual revenues and spending through 10 months of fiscal 1985, which will end Sept. 30, the two forecast a deficit of $189 billion, which rises to about $200.7 billion if off-budget expenses are included.
That comes well below the OMB Aug. 30 estimates of an ``on-budget'' deficit of $201 billion and a ``total'' deficit of $211.3 billion. The OMB's initial estimates in February were $209.7 billion and $222.2 billion respectively.
(The budget OMB now prefers includes some spending previously regarded as off-budget. These outlays were included in the regular budget for the first time in the Reagan administration's fiscal 1986 budget.)
Observing similar trends halfway through fiscal 1984, Mr. Linde and Mr. Hokenson made similar optimistic projections on the size of the deficit as compared with the OMB. They proved half right. The actual deficit came in about midway between their projection and the OMB's.
If the two have guessed correctly on budget developments in the last two months of this fiscal year, their initial February 1985 deficit projections will just about hit the nail on the head. These forecasts have just been updated to take account of later numbers. The results differ in detail but not much in the totals.
An OMB spokesman admitted that in fiscal '84 the agency exaggerated defense exenditures in its projections because Defense Secretary Caspar W. Weinberger had insisted such spending would catch up with the projections and was concerned that Congress would try to lop defense appropriations further.
This fiscal year, the spokesman insisted, his agency's projections of revenues and outlays, and thus the deficit, are ``honest.''
Because the deficit is obtained by subtracting total revenues from total outlays, tiny percentage changes in revenues and spending can result in significant changes in the deficit.
Such small shifts can make either the OMB or the two brokerage-house economists closer to right. ``We will see,'' the OMB spokesman said.
The Linde-Hokenson February forecast is already half right, according to the OMB. As for the other half, Hokenson says: ``We feel pretty good about it. But it is going to be a squeaker.''
Looking at the budget numbers for the first 10 months, Linde and Hokenson note that receipts grew at 11.3 percent, vs. the 11.1 percent that OMB forecast last April.
Outlays were up 11.1 percent, compared with the 12.1 percent in the OMB forecast.
On the revenue side, individual income taxes and social security taxes and contributions are above projections. So are estate and gift taxes, customs duties (as a result of the import boom), and miscellaneous receipts. Corporate income taxes and excise taxes are running below the forecasts.
Linde and Hokenson say their ``best guess'' for revenues for the year is 11.7 percent over 1984 to $744 billion.
As a result of sharp increases in defense and health outlays, federal spending reaccelerated in July, posting a 14 percent gain over July 1984. This follows a 0.3 percent June '84-June '85 growth rate. But the two economists regard July's increase as a ``one-month wonder.''
According to the two economists, this year's deficit will be comparable to last fiscal year's on-budget deficit of $175.3 billion.
That's because spending this year includes a one-time $13 billion financing charge for the Department of Housing and Urban Development.
Linde and Hokenson note that their latest deficit numbers are a ``lot better'' than the original OMB estimates. But they add that these still leave ``a lot to be done by the administration and the Congress in the near future'' to reduce deficits.