White House’s Crystal Ball Shows Some Flaws

When the President of the United States makes his annual budget projections, they are treated with great respect by Wall Street, corporate planners and the general public.

Sometimes, however, the estimates prove to be so far off that they raise eyebrows even among the most cynical Washington observers.

Two years ago, for example, President Bush forecast a deficit of $100.5 billion for fiscal year 1991, which ended last October. When the Treasury Department made its final accounting last fall, the red-ink total was almost triple that amount--a record $268.7 billion.

How did it happen?

The main villains were the recession and fast-rising expenditures for the bailout of defunct savings and loans. They accounted for almost all of the startling increase, according to a study by the General Accounting Office.

Reflecting the downturn that began in July, 1990, individual income tax receipts fell dramatically by $55.8 billion, while corporate income tax collections plummeted by another $30.5 billion. Revenue from Social Security payroll taxes dipped by $20.9 billion.

On the spending side, payment of federal deposit insurance to customers of failing financial institutions went up an astounding $59.2 billion above the estimates furnished by the Office of Management and Budget.

The resulting higher deficits--combined with higher interest rates on government borrowing for part of that fiscal year--pushed up interest payments on the public debt by $24.4 billion above OMB projections to a total of $286.0 billion.

Spending for other recession-related programs also surpassed the January, 1990, estimates, including an additional $9.9 billion for unemployment benefits, $3.2 billion for food stamps and $7.5 billion for Medicaid.

While the much-heralded 1990 deficit-reduction agreement between Congress and the White House was expected to produce savings of $33 billion in the following year, the actual savings were far less, the GAO said. “This demonstrated that enacting budget savings does not guarantee that the deficit will go down,” the agency’s report said.

More recent deficit news is far worse. Bush projected a shortfall of $399 billion for the 1992 fiscal year. For 1993, the forecast deficit is $351 billion, even if Congress adopts his entire growth package of tax cuts and spending reductions.

The difference between the OMB estimates and the actual amounts is partially attributable to the great difficulty in projecting receipts and spending totals 20 months in advance. For example, changes in weather may affect farm subsidy payments. If more young people decide to go to college and apply for student loans, it also will increase government spending.

But there is also a natural tendency, especially in election years, to paint a rosy scenario in the President’s budget.