Deficit Law Quirks May Let Congress Duck Cuts

Although the Gramm-Rudman law promised to reduce the federal deficit to zero by fiscal 1991, quirks in the law and the vagaries of economic forecasting appear likely to let Congress duck the tough measures necessary to meet the targets.

As White House Budget Director James C. Miller III put it, the law shows the budget through “a mirror . . . . You get a little bit of smoke.”

Thanks to Gramm-Rudman’s mathematical sleight of hand, Congress could claim on Oct. 1, the beginning of fiscal 1987, that it has met Gramm-Rudman’s goal for that year. The goal is a $144-billion deficit, $80 billion smaller than the deficit projected for this year.

Nov. 4 Elections

And, because of this sleight of hand, on Nov. 4--when elections will take place for all House seats and one-third of the Senate seats--the deficit could appear to be gliding sharply downward--and members of Congress could take credit as they campaign for reelection.

Several months later, however, Congress could find that it actually had missed the mark by tens of billions of dollars. By then, it would be too late to invoke Gramm-Rudman’s government-wide spending cuts.

“Gramm-Rudman was never set up in my view to reduce the deficit,” House Budget Committee Chairman William H. Gray III (D-Pa.) says. “It was set up to reelect the Senate,” which conceived the law. But the idea had political appeal as well in the House, which approved it last year by as big a margin as the Senate.

For fiscal 1987, the government-wide spending cuts will take effect in early October if government budget offices predict at that point that the deficit otherwise would exceed the $144-billion target by at least $10 billion.

A Painful Choice

And they will take effect only if Congress votes for them. That vote would give members of Congress a painful choice--a yes vote would trigger unpopular spending cuts and a no vote would endorse a massive deficit--and the easiest course for Congress would be to duck the issue.

It may be able to do just that.

Economic forecasting could help. Predictions by government economists of unrealistically vigorous economic growth would make next year’s deficit look unrealistically small.

At present, government economists are forecasting growth next year of about 3.8% after inflation. That is the average of the two forecasts by the two budget offices--the White House Office of Management and Budget and the Congressional Budget Office--that are responsible for making the official deficit forecast.

Estimates Vary Widely

The estimates of private economists, on the other hand, vary widely, although on average they expect the economy to grow at closer to 3%. “I don’t remember a time there’s been this kind of divergence” in opinion among economists, Congressional Budget Office Director Rudolph G. Penner said Thursday.

If economic growth ultimately proves weaker than government economists predict, that would drive down income tax revenue--and drive up the deficit. Growth of 3% instead of 3.8% could add $15 billion to the deficit, according to the Congressional Budget Office.

Beyond the uncertainties of the economy, Gramm-Rudman uses an unrealistic formula for forecasting government spending--a formula that may underestimate spending in the coming year.

Highly Unlikely Prospect

Congress probably will not enact its major fiscal 1987 spending bills before Oct. 1. In that case, the law requires OMB and the Congressional Budget Office to assume that the Defense Department, the Health and Human Services Department and other massive federal agencies will spend no more next year than this year--a highly unlikely prospect.

The first official gauge of Congress’ success at meeting Gramm-Rudman’s fiscal 1987 deficit target will occur on Aug. 15. That’s when the White House and congressional budget offices will make their first formal estimates of next year’s deficit.

Preliminary indications this week show that the Congressional Budget Office will estimate a deficit of about $173 billion. The OMB estimate is expected to be slightly more than $154 billion. The average will be about $20 billion greater than the $144-billion target.