A newly discovered 'Technical Cookie Monster' to eat half of 1990 budget agreement savings.

WASHINGTON -- A newly uncovered error in the Treasury's estimates of tax revenues will drive up the deficit by $216 billion over the next five years and wipe out almost half of the $496 billion in savings contained in last year's budget pact, the Senate Budget Committee said yesterday.

The error was revealed when the Office of Management and Budget released its revised deficit forecast of $348 billion for fiscal 1992 on Monday tht contained a correction in the revenue estimates, the committee said.

The mistake, confirmed by OMB Director Richard Darman in testimony before the panel yesterday, was discovered recently by Treasury Department estimators and came as a last-minute "surprise" to the OMB when it was preparing its deficit forecast, he said.

The Treasury computed likely tax collections from income such as alimony, pensions, and royalties at an effective tax rate of 20% to such income, but estimators now believe a more appropriate rate would be 10%, Mr. Darman said. "Now I suspect we are overcorrecting, but if we build in a more cautious view on how we're doing on the deficit, I think we're better off," he said.

The major "technical" shift in revenues caused consternation on the committee yesterday, especially because it comes on top of a massive shiff of thrift and war-related borrowing and spending tht the OMB says will catapult next year's deficit to a level more than $120 billion above previous records.

Sen. Paul Simon, D-Ill., pointed out that the borrowing surge to finance the deficit will push the gross interest that the government pays on the national debt up to $296 billion in the next two years -- making interest the largest expenditure in the U.S. budget for the first time.

Budget Committee Chairman James Sasser, D-Tenn., said a revenue loss of $133 billion resulting fro the Treasury's estimating error virtually offsets the $137.2 billion, five-year tax increase contained in last year's budget agreement, "over which we shed so much blood."

The estimating error also results in large outlays increases, which, without specifying, Sen. Sasser said bring the total deficit increase over five years from the error to $216 billion -- nearly half of the $496 billion of savings contained in the budget agreement.

"The savings have just been swallowed up, to an unfortunate degree, by some sort of technical cookie monster," he said. "It shakes one's confidence in forecasting to think those gnomes in the basement of Treasury could be losing billions of dollars" through another estimating error, he said.

While the latest deficit projections appear to devastate the achievements of the budget agreement, neither Mr. Darman nor committee members said they should reopen the agreement or attempt to go beyond it to bring the deficit down.

In fact, Mr. Darman and committee Democrats spend considerable time sparring over whether and how to apply provisions of the agreement that exempt certain programs from the agreement's spending caps for designated emergencies.

Sen. Peter Domenici, R-N.M., pointed out that only expenditures jointly recognized as urgent by both the adminsitration and Congress qualify for the agreement's special emergency treatment.

However, Mr. Darman said he has seen dozens of provisions in bills pending in Congress which attempt to designate normal, predictable expenses as emergencies, or which underfund programs with any eye toward forcing an emergency appropriation later on to keep the program going.

Mr. Darman in particular refused to go along with a move by Sen. Donald Riegle, D-Mich., and other congressional Democrats to designate a measure that would provide extended unemployment benefits to long-term unemployed workers in regions where they do not currently qualify for such benefits as "emergency" legislation that would be exempt from the budget restrictions. The OMB has estimated that the bill would cost $5.4 billion in fiscal 1992.

Ordinarily, Congress should use the Gramm-Rudman law's suspension procedures to pass emergency legislation needed to counter a recession, he said. But, in any case, "recession can't be the reason" for the emergency designation, since "the economy is turning up," he said. "By the time this thing works through the system, we wil be way beyond the recession," he said.

Sen. Riegle angrily disagreed, however, saying that with millions of unemployed people, "if that's not an emergency, I don't know what an emergency is." He said that the government's unemployment trust fund currently has an $8 billion surplus that was intended to be used during such economic hard times.

"I think it's outrageous to leave that money just sitting in the fund," the senator said.

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