White House Shrinks Estimates on Deficit : Economy: The Administration’s midyear report says the recovery is easing the red ink faster than it had predicted.

The Clinton Administration, trumpeting perhaps its most important economic policy achievement, said Tuesday that the federal deficit is shrinking faster than even the White House expected in response to accelerating economic growth.

Administration officials now estimate the deficit will decline to $167.1 billion in 1995, and they say the Clinton economic plan should result in a cumulative $691.7 billion in deficit reduction over five years. Originally, President Clinton claimed that the deficit would shrink by about $500 billion over five years if his 1993 economic package was passed by Congress.

The new figures, included in the Administration’s midyear review of the budget to be officially released Thursday, also show that Clinton should come close to achieving his goal, first stated during the 1992 presidential campaign, of cutting the deficit in half during his first term in office.

The new forecast for fiscal 1995 calls for the deficit, as a share of the overall economy, to decline to its lowest level since 1979. When Clinton came into office, his Administration projected that the deficit in 1995 would hit $301.8 billion unless his economic plan was approved by Congress. And even in its last full budget last winter, the White House predicted that next year’s deficit would total $176.1 billion.

For 1994, the Administration now estimates the deficit will hit $220.1 billion, down from February’s prediction of $234.8 billion.

Virtually all of the improvement in the deficit outlook since the Administration’s last official projection was issued last winter has come as a result of accelerating economic growth.

Faster growth puts more people back to work, which means they pay more taxes to the federal government. More employment also tends to lower the welfare rolls, holding down Medicaid health care costs for welfare recipients. Growth also leads to healthier banks and savings and loans, thus lowering federal costs for bank and thrift bailouts.

“We thought we were targeting about $500 billion in deficit reduction over five years; we’re now looking at close to $700 billion. . . . Of that $200 billion, a good portion comes from revenues that are flowing in above our expectations because of economic performance, and we have gotten some smaller costs in the health care area as well,” White House Budget Director Leon Panetta said. The news briefing to announce the figures marked Panetta’s last public appearance as budget director; he is moving at the end of the week to the White House to become chief of staff. He will be succeeded at the Office of Management and Budget by his deputy, Alice Rivlin, who, like Panetta, is widely considered a deficit hawk.

Still, the new figures show that rising interest rates will create a larger deficit in later years.

The White House said that beginning in 1996, the effect of this year’s rising interest rates will more than offset the positive impact of faster growth, resulting in a deficit of $179.2 billion, up slightly from February’s estimate of $173.1 billion. But that is still far below the Administration’s initial projection, made in early 1993, that the deficit would reach $298 billion in 1996 without the Clinton plan. The budget deficit hit its all-time record of $290 billion in 1992.

The Administration’s new report is certain to renew the partisan debate in Washington over the degree to which Clinton can claim credit for improved outlooks for the deficit and the economy. Most private economists argue that the Clinton plan has had relatively little to do with the overall recovery.

Deficit in Decline?

White House projections for the federal deficit before and after passage of the President’s economic plan, in billions:

1994 1995 1996 1997 1998 Projections $305.3 $301.8 $298.0 $347.1 $387.7 prior to economic plan Current 220.1 167.1 179.2 190.0 191.8 deficit projections Difference 85.2 134.7 118.8 157.1 195.9

Sources: White House, Los Angeles Times Washington bureau.