Budget Director Reverses Optimistic Deficit Forecast

White House Budget Director James C. Miller III Monday reversed his optimistic projections of less than three months ago and warned that next year’s deficit could be at least $10 billion over the limit imposed by the Gramm-Rudman budget-reduction law--enough to trigger a congressional vote on wide-ranging spending cuts to meet the target.

He added that the deficit in the fiscal year ending Sept. 30 is likely to reach $220 billion, about $12 billion more than he projected before.

Meanwhile, congressional leaders, returning from their two-week Independence Day recess, began sifting through their options to meet the law’s goal, including whether to reaffirm spending cuts that were made in March but invalidated last week by the Supreme Court.

“We’re in a labyrinth, to be perfectly truthful,” House Speaker Thomas P. (Tip) O’Neill Jr. (D-Mass.) said. However, he added that he would advocate making the politically dangerous cuts in popular federal programs if they were needed to meet Gramm-Rudman’s $144-billion deficit target for fiscal 1987, which begins Oct. 1.

Miller, noting that his latest projections are tentative, told a group of reporters that a sluggish economy appears to be making it more difficult to reach the Gramm-Rudman goal. “The deficit situation, frankly at this point, based on our latest information and calculations, looks worse, not better,” he said.

As recently as April, Miller had said that the same economic indicators showed the opposite--that the fiscal 1987 deficit would be about $10 billion below Gramm-Rudman’s $144-billion target--and argued that they lessened the need for restraint in defense spending or higher taxes.

He once again dismissed those two options for reducing the deficit and suggested that the Reagan Administration may try to meet the target by vetoing domestic spending bills, even those that fall within the guidelines of the budget resolution Congress passed last month.

The congressional budget largely spared domestic programs from cuts and instead made the reductions in defense spending. It would force Reagan to propose new taxes if he wants to allow the defense budget to keep pace with inflation.

Not Reference Point

“This year, since we did not embrace the congressional budget resolution, we do not necessarily have that . . . as our point of reference,” Miller said.

If the official projection shows the deficit only slightly above the Gramm-Rudman target, he said, Congress and the President could agree to make minor spending cuts to meet the goal to avoid voting on the across-the-board reductions.

The Gramm-Rudman law, enacted in December, aims to balance the federal budget within five years by setting a series of declining deficit targets. If laws are not enacted that would bring the deficit within $10 billion of each year’s target, it sets a formula for spending cuts--coming equally from domestic and defense budgets--that would bring the deficit down to that goal.

The Gramm-Rudman law originally would have forced the reductions automatically, without requiring Congress to vote for them or Reagan to sign them into law. But the Supreme Court ruled last week that the automatic feature was unconstitutional because it allowed the comptroller general--a congressional employee--to administer cuts that would be forced on executive branch agencies.

Forced to Choose

Making the cuts themselves, as the law now requires, would be difficult for Reagan and Congress because they would be forced to choose between reducing the deficit and maintaining federal programs dear to them. Moreover, the order to make the reductions would be effective Oct. 1--angering voters only weeks before this fall’s crucial congressional elections.

The cuts would be based on an average of economic projections to be made Aug. 15 by the Office of Management and Budget, which Miller heads, and the Congressional Budget Office. Many on Capitol Hill expect the congressional economists to produce a forecast even more pessimistic than that of the White House.

The first test of will for Congress and the Reagan Administration will be made on the question of whether to affirm $11.7 billion in fiscal 1986 cuts already made under the law on March 1, before the Supreme Court eliminated Gramm-Rudman’s automatic trigger.

Leaders of both houses have said that they expect the cuts to be approved. Although O’Neill noted that he had disagreed with the priorities established under the law’s formula, he said: “My position is we ought to go along with those earlier cuts. . . . It’s been completed, and I don’t believe we ought to go over and undo it.”

O’Neill’s Prediction

Similarly, O’Neill said, if Congress were forced to consider legislation that made even deeper cuts for next year, “I think we would pass it--I hope.” He also predicted that Reagan “would sign anything of that nature that reaches his desk.”

O’Neill said he would object to an attempt being made by the law’s authors to correct its constitutional problems by taking the comptroller general from Congress’ direct control.

Sen. Phil Gramm (R-Tex.), a prime author of the law, said that he and other sponsors were meeting with various government officials this week to consider their options.

Miller said the automatic cuts would be constitutional only if they were administered by an official “serving at the pleasure of the President” and added that he himself, rather than the comptroller general, was a “logical choice” for that duty.