Deficit Hits $168 Billion : Drastic Cutbacks Loom as U.S. Hikes Its ’91 Estimate : White House 1st Forecast Was Way Off

The Bush Administration today dramatically boosted its official estimate of the fiscal 1991 budget deficit to $168.8 billion, two-thirds higher than its forecast just six months ago.

The increase could force automatic spending cuts of more than $100 billion if Congress and the Administration fail to agree on a package of spending reductions and tax increases.

Today’s estimate did not include the costs of bailing out the savings and loan industry. When those costs are included, the deficit for the fiscal year that begins Oct. 1 climbs to $231.4 billion, the White House said in its official mid-session review of the budget.

The Bush Administration had estimated the budget deficit at $100.5 billion when the President’s budget was released in January.

The new deficit estimate is also significantly higher than the $64-billion deficit target set by the Gramm-Rudman balanced budget law.

If Congress is unable to reduce the deficit to within $10 billion of the $64-billion target, automatic across-the-board spending cuts will take effect.

Along with its new deficit estimate, the Administration included dire warnings of what could happen if the current budget negotiations between Congress and the Administration fail and the across-the-board cuts are triggered.

White House Budget Director Richard G. Darman called across-the-board cuts of more than $100 billion unprecedented in their magnitude and “highly disruptive” to a host of government programs.

Darman said such a reduction would require a 38.4% cut in non-defense spending and cuts of between 25.1% and 43.3% in military programs. Social Security and some other entitlement programs are exempt from Gramm-Rudman cuts, forcing even sharper reductions in other programs.

Darman said the Gramm-Rudman cuts would force major reductions in air traffic control operations, increasing delays for air passengers by 400% to 600%. The cuts also would require a 40% reduction in the Head Start program, affecting 200,000 4-year-olds, and curbs on other government programs ranging from poultry and meat inspections to cleanup of Superfund toxic waste sites.

“If the summit negotiation fails, these effects are exactly what we will face in the fall,” Darman said at a news conference.

The Administration’s new estimates make it highly likely that the Gramm-Rudman law will have to be at least modified, given the size of the cuts needed to reach the $64-billion target. The Administration and Congress have been discussing spending cuts and tax increases in a range of between $50 billion and $60 billion, about half of what would be needed with the new estimates.

By emphasizing a deficit figure that did not include the savings and loan bailout, the Administration seemed to be laying the groundwork for removing this giant expenditure from the Gramm-Rudman calculations, something that many members of Congress have also proposed.

The Administration blamed the sharp deterioration in the deficit on the higher-than-expected savings and loan bailout, weaker economic growth and higher interest rates.