White House sets '92 deficit of $260 billion Social Security surplus excluded

plan called austere

January 02, 1991|By Stephen E. Nordlinger | Stephen E. Nordlinger,Washington Bureau of The Sun

WASHINGTON -- The administration is putting the finishing touches on an austere 1992 budget that will still show a record deficit of more than $260 billion, according to budget officials. The deficit will reach more than $330 billion if the large Social Security surplus is not taken into account.

The rise in the deficit stems, officials said, from the economy's slide into a recession, which crimps revenues and accelerates spending for unemployment benefits and other programs to relieve hardship. The huge costs of resolving insolvent savings and loan institutions and paying for Operation Desert Shield also are contributing to the deficit.

The 1992 budget, which President Bush will send to Capitol Hill Feb. 4, will be the first to come under the severe tax and spending rules adopted in last fall's compromise deficit-reduction package, which provides little leeway for new initiatives.

Officials said the president's budget blueprint would emphasize "investing in the future," through tax incentives to encourage people to save and through spending on education, particularly in science.

To keep the nation abreast technologically, the budget will call for doubling over five years the $500 million spent annually on high-performance computers.

The budget will again promote the idea of urban "enterprise zones," which provide tax breaks and other benefits to attract business to areas of high unemployment.

And additional tax incentives are to be proposed to encourage research in new products and technologies by corporations.

To ameliorate the rapidly deteriorating health conditions in inner cities, the administration intends to seek funds to improve preventive health care for children and to seek expanded funding for child nutrition and the Head Start program for preschoolers.

Officials said the president also will seek additional funds for school programs aimed at encouraging students who display outstanding academic achievement.

The president also was reported to be seeking some limited funds to promote tenant ownership and management of public housing.

To offset the costs of these proposals, the president is expected to call for nearly $3 billion to be trimmed from Medicare spending beyond the cuts stipulated in this fall's deficit-reduction package. The proposed cuts would come from reducing reimbursements to hospitals and physicians. Dr. Louis W. Sullivan, secretary of Health and Human Services, has protested these proposed cuts to Richard G. Darman, director of the Office of Management and Budget.

The president's budget reportedly will also ask that the states shoulder more of the cost of road construction and that rural electrification subsidies be abolished.

The states, many already strapped financially, may for the first time be authorized to charge tolls on federally aided highways.

The deficit for the 1991 fiscal year, which ends Sept. 30, is expected to be near $320 billion if the $66 billion Social Security surplus is not taken into account. If the surplus were included, it would hover around $250 billion.

The previous record deficit was $221 billion, including the Social Security surplus, set in 1986.

In the interest of "honest bookkeeping," Congress decided to exclude the Social Security surplus from future budget accounting since these surpluses are supposed to finance Social Security benefits. That's one of the provisions of the budget agreement.

But the administration budget package will include deficit figures with and without the Social Security surplus. Contrary to the congressional view, many economists think the Social Security surplus should be reflected in the deficit to give a true picture of total government financing and its impact on the economy.

Even though the deficit is rising rapidly this year and in the 1992 fiscal year, which starts Oct. 1, the budget compromise agreed to by Congress and the administration did make headway in cutting the deficit. The Congressional Budget Office estimated that the deficit in the current fiscal year would have been $35 billion higher without the agreement.

To keep tight control over the deficit, the new budget law imposes spending caps for three years in three broad areas: domestic, military and foreign aid.

The system authorizes automatic spending cuts in each category if the three separate limits are breached, rather than subjecting the entire budget to automatic spending cuts, which had been the approach of the Gramm-Rudman law.

Because of limits adopted in the deficit-reduction package, appropriations in those areas must fall even below the rate of inflation. The president and Congress, therefore, will have little leeway for new spending in the coming fiscal year without cutting some programs.

Similar tight restrictions are imposed on taxes. Any proposal that involves a tax cut must be offset by a tax increase.

President Bush cited these budget constraints at a recent news conference in suggesting that he was going to abandon for the time being his long-cherished proposal to cut the capital gains tax rate.

While Mr. Bush insists that a cut would raise revenue by encouraging investors to sell assets and pay taxes, Democratic congressional leaders maintain that a cut would lower revenues.

Under the new budget system, the president would have to propose a tax increase to offset such a loss.

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