1987 Tax Windfall Could Help Meet Gramm-Rudman Target : Deficit Expected to Exceed Cutoff Figure

WASHINGTON — Government economists predicted Tuesday that next year’s federal deficit would exceed the $144-billion Gramm-Rudman target figure by almost $20 billion, but they said Congress could use the tax-revision bill it is expected to pass next month to escape thorny election-year spending cuts and still comply with the budget-balancing law.

White House Budget Director James C. Miller III and Rudolph G. Penner, head of the Congressional Budget Office, estimated in a joint report that the fiscal 1987 deficit would reach $163.4 billion, a level that could lead to a $19.4-billion slash in a wide range of military and civilian programs unless lawmakers act quickly to reduce the red ink.

One-Time Windfall

But they also acknowledged that a one-time windfall of $11 billion, expected to come from the tax bill, could leave the deficit below the level that would require further action under the Gramm-Rudman deficit-reduction bill.

If sweeping spending cuts did kick in, however, Penner said that “a couple hundred thousand” soldiers and other personnel would have to be dropped from the military payrolls and spending on many other federal programs would be cut sharply.

In all, such a development would strip $9.7 billion each from projected Pentagon and non-Pentagon budgets. That would amount to a 5.6% cut in the defense budget and a 7.6% reduction in non-defense spending, according to projections outlined by the two economists.

In theory, the drastic cuts called for under Gramm-Rudman would be split almost evenly between military and non-military programs, but programs representing more than 60% of the federal budget--including Social Security and many poverty programs--are exempt from that cutting process.

The report from Miller and Penner was issued to meet a requirement of the Gramm-Rudman law, which outlines a complex schedule of budget-related activities designed to force Congress and the White House to eliminate deficits in stages, over a five-year period.

Both men cautioned that their calculations, made from a “snapshot” estimate of revenues and expenditures as of last Friday, were highly “elastic” and subject to significant adjustments. The projections will form the basis of congressional wrangling over budget-cutting when the lawmakers return from Labor Day recess Sept. 8.

The Supreme Court last month confused that coming debate when it threw out a key provision of the Gramm-Rudman law that would have required sweeping spending cuts if Congress did not meet deficit-reduction goals. Sponsors of the legislation had hoped that such mandatory cuts would prod the lawmakers into reducing spending on their own, but the court ruling could ease some of that political pressure.

Sponsors in the Republican-run Senate hope to gain approval of a revised automatic-cutting feature next month, but Democratic leaders in the House so far have balked at the Senate’s solution. As the law now stands, lawmakers would have to vote in early October to reaffirm any across-the-board Gramm-Rudman cuts if they did not meet the deficit-reducing goals.

Although the deficit target figure for next year is $144 billion, the law contains a “cushion” that would allow a deficit of as much as $154 billion before the mandatory spending cuts would be triggered. If by Oct. 1 Congress has not devised a formula of spending trims and revenue increases to meet the $154 billion limit, the legislation calls for more drastic action to achieve the $144-billion goal.

If the estimates released Tuesday do not change significantly, lawmakers need only trim the deficit by $9.4 billion to bring it below $154 billion. That could easily be accomplished by applying the $11-billion revenue bulge the tax bill is expected to produce in fiscal 1987.

Aggravate the Deficit

Penner cautioned that such a development would aggravate the deficit by about $17 billion in the next year, when peculiarities of the tax law are expected to reduce revenues.

Miller also warned against applying the windfall to deficit reduction. He called on Congress to continue deficit-cutting efforts, and said the Reagan Administration would propose a new, $14-billion reduction package calling for the sale of more government assets and increases in Coast Guard user fees, agricultural inspection fees and charges for some government-guaranteed housing loans.

“I would be very unhappy if we simply used the $11 billion to say ‘everything is hunky-dory and we can go home,’ ” he said.