Bush’s Budget Forecasts Rising Waves of Red Ink : Spending: Gloomy projection warns that the federal deficit will hamstring Clinton’s economic agenda.

The Bush Administration on Wednesday provided a bleak assessment of the fiscal outlook confronting President-elect Bill Clinton, projecting year after year of stubbornly high deficits and warning that the new Administration will find it all but impossible to carry out its campaign agenda.

President Bush released a bare-bones budget that shows the federal debt increasing by more than $1 trillion over the next four years, even in the absence of any new spending initiatives.

While Bush’s blueprint stands no chance of being enacted, it will serve as a starting point for the more detailed plan Clinton will present to Congress next month.

The Bush budget, which proposes no new programs and assumes no changes in current funding levels, provides a graphic analysis of just how little elbow room Clinton will have to deal with the array of domestic problems he promised to address.

In a parting shot, outgoing Budget Director Richard G. Darman authored a point-by-point critique of the economic agenda that Clinton proposed in his campaign. Darman said Clinton’s program will prove unworkable unless he finds a way to rein in future growth of mandatory spending programs such as Medicare and Social Security, which account for an ever-increasing share of the federal budget.

“The only way to bring the deficit down while not raising taxes on the middle class . . . is to have a program for strong economic growth and a program that includes some form of a cap on mandatory spending,” Darman told reporters as he released the abbreviated budget.

In the absence of such reforms, the Bush Administration foresees a series of budget deficits extending far into the future. The budget projects a 1997 shortfall of $305 billion, considerably higher than previous White House estimates, and calls into question Clinton’s pledge to halve the deficit in four years while boosting spending in such areas as public works, education and job training.

Clinton reacted with alarm to the new projections, acknowledging that the prospect of bigger deficits makes the choices far more painful as he attempts to pull together his economic agenda.

The numbers almost certainly will cast a pall over a scheduled meeting today at which Clinton and his newly appointed economic advisers will begin to make key decisions on the plan he will present to Congress.

“We can now see the full magnitude of the debt we will inherit and the challenge we must confront,” Clinton said in a statement from Little Rock, Ark. “The unsettling revelation, however camouflaged, is that the projected deficit for 1997 has grown by $60 billion and that, if left unchecked, it could soar above $400 billion near the end of the decade. This sounds the final warning bell. This endless pattern of rising deficits must stop.”

Senior advisers said the worsening fiscal outlook may force Clinton to scale back his plans to increase spending on public works projects or forgo a proposed middle-class tax cut. So far, aides said, Clinton has put off making tough choices on his economic program.

Although Clinton is required by law to submit a budget to Congress by Feb. 1, many lawmakers expect him to request a delay.

In his response to the Bush budget, Clinton linked his pledge to tackle the budget deficit with a renewed commitment to address the nation’s “investment deficit,” underscoring his determination to increase spending in areas that he considers critical to future economic growth.

On Capitol Hill, lawmakers agreed that the new budget projections will complicate Clinton’s economic agenda.

Senate Budget Committee Chairman Jim Sasser (D-Tenn.) said the higher deficit estimates will make it “difficult if not impossible” for Clinton to keep his pledge to cut the deficit in half by 1997. Unless the economy grows much faster than expected, Sasser said, Clinton’s goal appears unrealistic.

“It’s going to be very hard for him to do it,” agreed Sen. Pete V. Domenici (R-N.M.), the ranking Republican member on the budget panel.

In the near term, the White House’s latest deficit figures appear better than previously anticipated. The 1993 deficit is forecast at $327.3 billion, down from $341 billion predicted last summer when the Administration issued its mid-year budget review.

But the outlook for later years is more pessimistic. Last July, the White House said the 1997 deficit would be $236.7 billion. The revised forecast of $305 billion is $68.3 billion more than the mid-year projection.

The Administration attributed the increase to congressional delays in funding the savings-and-loan bailout and weaker-than-anticipated economic growth.

The Clinton transition team has suggested that the Bush Administration may have deliberately masked the severity of the deficit problem until after the election. Clinton’s advisers said future fiscal shortfalls now appear much worse than expected when they drafted the economic agenda espoused in the campaign.

“Everyone should be unsettled by the idea that you can’t get straight numbers out of the OMB,” Clinton communications director George Stephanopoulos told reporters in Little Rock. He was referring to the White House Office of Management and Budget that Darman heads. “These numbers show that the deficit is far worse than anyone knew. What we’re trying to do is get the facts out.”

Asked how the new projections would affect the prospects for Clinton’s promised middle-class tax cut, Stephanopoulos responded: “I think that’s one of the things we’re looking at right now.”

Darman refused to respond directly to the Clinton team’s charges. But he noted that the Bush Administration’s deficit forecasts for 1996 and 1997 are not much higher than those issued by the Congressional Budget Office in August, well before the election.

At that time, for example, the congressional agency predicted that the 1996 deficit would be $254 billion, just $12.4 billion below the latest Administration figures.

Still, the numbers make it clear that entitlement programs, interest on the debt and other mandated outlays will squeeze any President’s ability to propose new discretionary spending, unless he opts for new taxes or restrictions on such politically sacred programs as Medicare.

The message conveyed by the Bush budget is especially stark because it contains no costly new spending proposals that Clinton could simply discard. Instead, it projects a continuation of current spending levels and represents, in effect, a statistically dispassionate portrait of the fiscal state of the nation.

That portrait, Darman said, means that Clinton’s economic agenda is fatally flawed. He noted, for example, that Clinton’s campaign promise to halve the deficit in four years relied heavily on a prediction that his “investment” agenda would stimulate faster economic growth.

Clinton proposed spending a total of $220 billion over four years on public works projects and human resource programs such as job training and education.

Under the increased deficit estimates, the United States would have to enjoy four straight years of economic growth averaging 4.4% to 4.8% annually to fulfill Clinton’s deficit-reduction pledge, Darman said. “We have never in post-World War II America had four consecutive years of such growth,” he said.

The Bush budget projects overall economic growth of 3.0% this year, declining to 2.9% in 1994 and leveling out at 2.5% from 1995 to 1998.

Darman said Clinton’s task will be made even more difficult by his pledge not to raise taxes on people making less than $200,000 a year as well as his promise to provide universal access to health care.

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The Bouncing Bottom Line

The projected size of future federal deficits has risen sharply since last July. The budget released by the White House on Wednesday shows a 1997 deficit of $305.0 billion, an increase of $68.3 billion from only six months ago. (billions of dollars)

1992 1993 1994 1995 1996 1997 1998 Last summer’s estimate 333.5 341.0 274.2 218.4 217.7 236.7 273.4 Wednesday’s estimate 290.2 327.3 292.4 272.4 266.4 305.0 319.8

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Exploding Entitlements

The principal cause of the federal government’s chronic deficit spending is the rapid growth of mandatory entitlement programs that are not subject to the congressional appropriation process. The biggest increases are from spiraling health care costs.

(billions of dollars) 1992 1993 1994 1995 1996 1997 1998 Medicaid 67.8 80.5 92.9 107.8 122.7 138.8 156.4 Medicare 116.2 129.9 147.8 166.3 188.5 211.4 235.8 Social Security 285.1 302.2 318.7 336.2 355.1 374.8 395.6 Total Entitlements 648.0 724.1 765.2 794.9 843.2 919.6 995.7

Source: Office of Management and Budget

Times staff writers Douglas Jehl in Little Rock and William J. Eaton in Washington contributed to this story.