Clinton Plan Is Shrinking Deficit, Analysts Say

The Congressional Budget Office said Thursday that the Clinton Administration’s economic plan, reinforced by an improving economy, will largely end the budget deficit crisis for the rest of the decade.

The nonpartisan office issued a new forecast predicting that the federal deficit will shrink to $166 billion by 1996--$124 billion below its estimates of just one year ago--with the bulk of the improvement resulting from the Administration’s deficit-reduction plan, which Congress passed last August.

The deficit would then be equal to 2.2% of the national economy, its lowest level since 1979.

The deficit peaked at $290 billion in 1992 and was $254 in 1993. If the CBO projection for 1996 is correct, Clinton will have achieved his campaign promise of cutting the deficit approximately in half during his four-year term.

CBO Director Robert D. Reischauer told the Senate Budget Committee that his agency has estimated that the Clinton plan will reduce the deficit by a total of $433 billion over five years.

Coupled with an improving economy, which is driving income tax revenues up, the Clinton package is now working so well that Reischauer said there is no need for Congress to take further action to curb the deficit this year.

“The dramatic improvement is largely the result of the enactment” of the Clinton plan, Reischauer said. “The difficult step taken by the President and the Congress in adopting a major deficit-reduction package last August seems likely to achieve the desired outcome--significantly lower deficits than were projected a year ago.”

The deficit will not surge significantly above the $200-billion annual level until after the year 2000, the CBO said, and will rise then only if Washington fails to take action on health care costs.

Without reforms to deal with rising health care costs and demographic pressures from an aging work force in the next century, Medicare and Medicaid costs will drive the deficit back up to $365 billion in 2004, the study said.

Reischauer predicted that the deficit will be tamed without serious damage to the economy. While Republicans warned last year that Clinton’s plan is so heavy with taxes that it would lead to a recession, the CBO said the economy will grow at a rate of 2.7% each year from 1994 through 1996--up from the 2.6% pace of 1993.

The Administration will release its own revised deficit forecast when it unveils its 1995 budget on Feb. 7, but the CBO numbers may actually be slightly better.

President Clinton said last weekend that the White House is predicting that the 1995 deficit would fall to about $180 billion, but the CBO’s report says the deficit will be just $171 billion that year.

The White House seized on the report and Reischauer’s comments as vindication for Clinton’s policies.

“There is nothing I like better than delivering good news, and we sure have it today,” said Treasury Secretary Lloyd Bentsen. “We’ve been telling people all along that we’re getting that deficit down and getting it down faster than we thought possible, and now we have an independent validation of that number.”

White House officials said the new budget numbers will help blunt a congressional drive for a constitutional amendment mandating a balanced budget, something Clinton has strongly opposed.

The Senate is tentatively scheduled to take up the balanced-budget proposal in about three weeks .

Times staff writer David Lauter contributed to this story.