GNP Grows a Weak 0.6%; Budget Billions Over Goal : Sharp Cuts Needed to Close Gap

Administration and congressional economic experts estimated today that the federal budget deficit will be $163.4 billion next fiscal year, nearly $20 billion more than allowed under the Gramm-Rudman balanced budget law.

In a joint report, the Administration’s Office of Management and Budget and the Congressional Budget Office said the deficit for the fiscal year beginning Oct. 1 will be $19.4 billion above the $144-billion limit set by Gramm-Rudman.

The excess deficit estimate means that federal spending will have to be slashed nearly $20 billion if Congress and the President restore full power to the Gramm-Rudman law and then fail to close the budget gap.

To bring the red ink down to the fiscal 1987 target, military spending would be cut 5.6% and domestic programs 7.6%, beginning in October, the report said.

Social Security Safe

Civil Service and military retirees would lose their cost-of-living raises for the second straight year. But the law protects Social Security recipients from the cutbacks, along with major poverty and veterans compensation programs.

Gramm-Rudman envisions the cuts to enforce its budget-balancing program, but Congress left Saturday for its Labor Day recess without resolving whether the cuts would actually be imposed.

Automatic spending cuts were included in the original Gramm-Rudman law, but the Supreme Court in July ruled that the automatic mechanism violated the Constitution’s separation of powers. The court said Congress could not designate one of its own officers, the comptroller general, to order the executive branch to make the cuts.

The Senate has approved a plan to restore the automatic scheme by having the President’s budget director issue the final order. But House Democrats, wary of giving one of Reagan’s appointees new powers, have balked, and the legislation is headed for a House-Senate conference.

Backup Provision

The court left in place a backup provision that would require both chambers to ratify the cuts prescribed today in the joint report and President Reagan to sign the resolution before they could take place.

Under Gramm-Rudman, another report on the economy is due in October, and if lawmakers are within $10 billion of the target no cuts will be required.

Congressional efforts to cut the deficit may get a boost from the tax reform bill. Preliminary estimates show that it will raise $11 billion next fiscal year, although it is supposed to neither lose nor gain over five years.

Final congressional action on many spending bills has been put off until Congress returns from its summer recess in mid-September.