Congress Warned It Could Trigger Huge Spending Cut

The Reagan Administration warned Thursday that Congress is in danger of exceeding the spending limits set by the Gramm-Rudman budget law and may end up triggering automatic across-the-board cuts of more than $10 billion.

In a briefing at the White House, James C. Miller III, director of the Office of Management and Budget, said that new budget projections compiled by his department show the government is only $5.9 billion away from having to impose the cutbacks.

He said that, if Congress enacts a half-dozen pieces of proposed legislation--including the drought-relief bills passed by the House and Senate--it could add between $6.4 billion and $8 billion to the projected budget deficit, touching off the required across-the-board cuts. Cuts made under the Gramm-Rudman law would affect virtually every major federal program.

The warning was issued despite new calculations by Miller’s office that show that the budget deficit is likely to be somewhat lower than predicted for next year--mainly because the economy is performing much better than expected. When the economy grows rapidly, tax revenues are likely to be higher and the government spends less on unemployment and welfare payments.

Miller said the deficit for the 1989 fiscal year, which begins next Oct. 1, now is likely to be $122.7 billion, about $29.6 billion lower than in the current fiscal year and $27.7 billion lower than in fiscal 1987.

That would place the deficit under the Gramm-Rudman law, which is calculated on a different basis, at about $140.1 billion, rather than the $142.7 billion predicted in February.

However, the Gramm-Rudman law requires that the Office of Management and Budget make $10 billion in additional cuts if the deficit reaches $146 billion, the fiscal 1989 target. That leaves just $5.9 billion for additional spending.

Miller said the Administration is not opposed to drought-relief legislation, which the President already has said he supports, but merely wants to make sure that Congress keeps the cost down. “Don’t use the plight of the farmers . . . to make a Christmas tree out of that bill,” he told reporters.

Reagan Wants Drought Bill

The drought-relief bills passed by the House and Senate would cost about $6 billion, partly, Miller said, because the lawmakers have added extra subsidies. He said Reagan wants to sign a drought bill but hopes to keep the total cost at $4 billion to $5 billion. A House-Senate conference committee is to draft a compromise version of the legislation before it is sent to Reagan for his signature.

Miller cited as potential budget-busters a $700-million supplemental appropriations bill; a $200-million emergency supplemental appropriations bill; $500 million for the omnibus trade bill; a $200-million hunger-relief bill and a $300-million welfare reform bill.

He told reporters that, unless Congress approves additional budget cuts to offset some of those expenditures, “we cannot do all those things that Congress has on its list right now” and still avoid automatic budget cutbacks.

Miller said that the new calculations did not include any of the new spending proposals made by either of the two major presidential candidates, Democrat Michael S. Dukakis or Republican George Bush.

Earlier this week, Bush announced a plan to provide up to $2.2 billion in new federal tax credits for child-care expenses and to offer incentives for employers to expand the nation’s day-care network. Miller said Bush “knows what the (budget) figures are and how they work.”

Warning on Inflation

Separately, Federal Reserve Board Chairman Alan Greenspan reiterated warnings that the central bank will not hesitate to force up short-term interest rates if it becomes necessary to blunt new inflation pressures.

Greenspan, testifying before the Senate Banking Committee, said he found the second quarter figures on inflation, which showed prices rising at a 4.7% annual rate, “surprising” and “somewhat larger than I would have expected.” But he gave no hint of any new action by the Fed.

Some economists now are predicting that the inflation rate will rise to 5% or more by the end of this year.