WASHINGTON -- Clinton administration officials yesterday reduced their forecast for this year's federal budget deficit by $14.7 billion because unexpectedly strong economic growth has produced enough tax revenue to offset the costs of higher interest rates.
But they cautioned that unless long-term interest rates fell to their levels earlier this year, higher interest on the national debt would result in slightly higher deficits later in the decade.
Yesterday's announcement of the revision was the latest in a series of estimates by government and private economists that the federal government's finances are improving. The improvement is important because it means that the federal government needs to borrow less money, in theory freeing up capital for businesses and consumers.
Congressional Budget Office experts have been estimating for several weeks that the deficit for the current fiscal year, which will end Sept. 30, will fall to as low as $200 billion.
But Leon E. Panetta, who will remain the director of the White House Office of Management and Budget until tomorrow, even though he has already taken his new job as White House chief of staff, was more cautious in announcing the administration's new estimates at a White House news conference yesterday.
He predicted that the deficit for the current fiscal year would be $220.1 billion, compared with his February estimate of $234.8 billion.
Mr. Panetta suggested that the administration should receive nTC considerable credit for the shrinking deficit. But Republicans on Capitol Hill said underlying budget problems persist and have merely been obscured by the extra tax revenue from economic growth.
"We have not solved any problems. We have temporary relief because of the business cycle," said Rep. John R. Kasich of Ohio, who is the ranking Republican on the House Budget Committee.
Mr. Panetta also forecast a deficit for the next fiscal year of $167.1 billion, down from his previous estimate of $176.1 billion.
However, Office of Management and Budget documents distributed at the news conference, but not discussed in detail by Mr. Panetta, predicted that the deficit would rise to $207.2 billion by 1999, more than the office's previous estimate of $201.2 billion.
All these estimates excluded the budgetary effects of whatever health care legislation may emerge from Congress this year.
Alice M. Rivlin, the budget office's deputy director and Mr. Panetta's designated successor as director, said that in addition to the extra tax revenue from higher than expected economic growth, the administration had also benefited from lower than expected spending on Medicaid programs.
The reasons for the lower spending are unclear because the states,which run the Medicaid programs using federal money, have not reported why the cost of these programs is not rising quite as quickly as expected this year, she added.