Deficit pulls away from targets. Slowing economy swells budget-gap forecast to $157 billion
Warning flags are once again flying about the size of the federal budget deficit. Yesterday, an independent watchdog of government spending, the Congressional Budget Office (CBO), turned pessimistic.
In testimony before the Senate Budget Committee, CBO acting director James Blum forecast that a slowing of the economy would cause a hiccup in the deficit of $11 billion more than expected in the current fiscal year. Continued sluggishness through the year would raise the deficit by another $30 billion in fiscal year 1989.
Thus, the CBO predicted the actual deficit in fiscal year 1988, which ends Sept. 30, could be $157 billion. In 1989 it could be as high as $176 billion.
The CBO numbers ``tell Congress it could have a big problem with Gramm-Rudman-Hollings [the deficit-reduction act] in August - just before the elections,'' says Rudolph Penner, a former CBO official.
To some analysts, the mounting deficit showed the problems Congress has grappling with the deficit problem. ``It illustrates we have a long way to go in dealing with the structural deficit problem,'' says Carol Cox, executive director of the Committee for a Responsible Federal Budget.
According to CBO estimates, outlays will rise by $74 billion in the next year.
Mr. Penner, in fact, says the CBO report reflects sharply rising medical expenses. ``Health is a much greater problem than we expected,'' he says. In 1990, the CBO says the main reason for the rising budget deficit is a projected increase in interest rates, which adds to the cost of servicing the national debt.
As Mr. Blum pointed out to Congress, the economy is also a much greater problem than expected. The CBO subscribes to several private econometric forecasting services as well as having its own economics staff. From these forecasts, it puts together the report.
CBO growth estimates for the nation's gross national product anticipate a rise of only 1.8 percent this year, compared with a more optimistic 2.4 percent forecast by the White House in December.
This growth estimate strikes Ms. Cox as unrealistic. The economy has grown for five years. If the CBO's forecast is correct, she says, the economy will have defied recent history by running recession-free for a long period. Even a mild recession, she says, could quickly swell the deficit to $200 billion.
Congress is likely to blanche when it hears the CBO report but is unlikely to do anything. Blum, for example, told the Senate Budget Committee that another $32 billion in cuts will be needed in the budget for 1989 just to meet the Gramm-Rudman target. There was considerable political pain last December when the administration and Congress agonized for three weeks over ways to cut $74 billion out of the deficit over a two-year period.
By making the cuts in December, Congress hoped to avoid making the budget an election issue. The election may actually obscure the budget problem. The President's budget is due to reach Congress Feb. 16, the same day as the New Hampshire primary. ``The budget will probably get consigned to feature pages,'' grumbles one budget aide.
Thus, instead of tackling the pesky numbers again, Congress is likely to wait until the Office of Management and Budget takes its midyear snap shot in August. If the OMB is optimistic about the economy, and predicts a lower deficit, Congress will sit back and wait until after the election to act. ``It is my judgment that Congress will ignore this CBO report,'' Penner says.