Update on the deficits: US trade running well, budget not so well

ONE bad number. One good number. That was the story last week regarding the United States' twin deficits.

The trade figure was the good one. The deficit shrank dramatically in March to $9.7 billion, more than $4 billion less than in February. If the pattern of the first three months of calendar 1988 were to continue, the trade deficit this year would shrink to about $144 billion from the record $171.22 billion in 1987.

Contrariwise, the federal budget deficit for April appeared grim. In this tax-due month, the surplus of receipts over outlays was only $13.9 billion, compared with plus $38 billion in April last year.

So far this fiscal year (which began last Oct. 1), the deficit amounts to $105 billion, $20.7 billion more than in the first seven months of fiscal 1987. Nonetheless, Treasury officials figure that the deficit to date is ``fairly consistent'' with that forecast in the February budget, which sees a fiscal 1988 deficit of $146.7 billion, down from $150.4 billion in fiscal 1987.

Why such optimism?

For one thing, the government gave out military pay and veterans benefits in late April rather than on May 1, because the latter fell on a Sunday. That added $5 billion to April's outlays.

Second, the Internal Revenue Service is running behind last year in processing individual tax returns. That delays receipts by an unknown amount.

Third, corporations have been allowed to pay their taxes at last year's rates temporarily under what is called the ``safe harbor'' provision. If their tax bills eventually prove higher, as they will in a majority of cases, the corporations have to pay the difference in June.

Lacy Hunt, an economist with Carroll McEntee & McGinley, a bond firm, doubts that corporations will allow themselves to fall significantly behind in tax installments. But that will be seen when the deficit for June is reported in mid-July.

So the jury is still out on whether the nation is making progress in reducing the budget deficit.

Comments Morgan Guaranty Trust Company in its World Financial Markets publication: ``The honeymoon of a new administration and Congress, together with the strong state of the economy, provides an exceptional opportunity to launch a budgetary initiative adequate to the challenge, the more so as there is plenty of evidence that the voting public is troubled by the chronic deficits and debt buildup.''

Morgan Guaranty economists figure that unless policy is changed, the deficit will remain close to $100 billion, even in fiscal year 1993. So they have made a number of suggestions to cut spending and boost revenues on a 60-40 ratio.

They suggest a one-year freeze on defense spending starting in fiscal 1990, a parallel freeze on nondefense spending, a slowing in the growth of spending on entitlements (pensions, etc.), a surcharge on income taxes (5 percent on personal income payments, 10 percent on corporate), and a boost in federal excise taxes and other indirect taxes, such as those on gasoline, cigarettes, and alcohol.

If combined with relatively easy monetary policy to sustain economic growth, the deficit would become a surplus of $7 billion in 1993. This in turn would greatly reduce the international payments deficit.

Probably the government will tackle the deficits again after the election. Certainly something more must be done to correct them.