WASHINGTON - The Congressional Budget Office yesterday projected that the U.S. budget deficit will fall to just below $200 billion and then level off between fiscal 1995 and 1998 largely due to the enactment of President Clinton's budget plan.

The Office of Management and Budget last week had seen the deficit dropping to a low point of $180 billion in 1995 and 1986, somewhat below the low of $190 billion in 1996 predicted by the congressional agency in its mid-year forecast.

But the congressional agency warned that the relentless increase in government health care costs at more than three times the rate of inflation will begin to drive up the deficit again toward $300 billion and above after 1998.

"The 1993 reconciliation act has temporarily subdued the deficit" and "the deficit record of $290 billion, set in 1992, is not likely to broken soon," the agency said. But the uncontrolled growth of Medicare and Medicaid continue to "cloud the budget outlook." the agency said.

The next steps that must be taken to reduce the deficit are "likely to prove even more painful" than the Clinton budget plan, which with its $250 billion each of tax increases and spending cuts - only narrowly passed Congress, the CBO said.

"The budgetary dilemma will be made still more acute by the administration's desire to increase access to health insurance and health care, reform the welfare system, and address such domestic needs as crime control, education, and job training - all without imposing major tax increases." the CBO said.

One bright spot on the horizon is the recent unexpected drop in long-term interest rates, both of which stemmed from passage of the deficit reduction plan and will help to offset its contractionary effect, the CBO said.

Lower interest rates will allow the economy to "maintain its momentum during the remainder of 1993 and 1994," the agency said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.