The stronger than expected economic recovery will help trim massive federal budget deficits, some forecasters say. An improvement in the government's budgeting could touch the average citizen's life in a number of ways. Reduced deficits make it less likely that interest rates will climb and snuff out the recovery, along with hopes of reducing unemployment. Less red ink in the federal account books would also reduce the revenue shortfall Congress may have to close by raising taxes.
Smaller deficits would also please the United States' allies. They expressed concern at the recent Williamsburg economic summit about American deficits and the effect they are having on interest rates and currency values. High US interest rates have pushed up the dollar's value by making it an attractive haven for foreign investors.
Perhaps the most optimistic deficit forecast comes from Lawrence Kudlow, chief economist at the Office of Management and Budget (OMB), which prepares the administration's budget estimates. Mr. Kudlow, who is leaving the government to take a job in the private sector, ventured his personal projection of the 1986 deficit at $85 billion, or 41 percent less than the administration's official $ 144.6 billion forecast. ''I think the deficit problem has been overrated,'' he told a recent Brookings Institution conference.
Mr. Kudlow's forecast of deficits less troublesome than anticipated is based on his expectation of improved economic growth. He predicts that, after adjustment for inflation, the economy will grow 6 percent between the fourth quarter of 1982 and the final quarter of 1983, with growth of 5 to 6 percent in 1984 and 4.5 percent in 1985. The administration's official forecast is for 4.7 percent growth this year and 4 percent in 1984 and '85.
Other forecasters also say the recovery looks stronger than it did this winter, but they expect less progress on the deficit than Mr. Kudlow does.
''The economy has clearly recovered somewhat more rapidly so far this year'' than forecast previously, says Paul N. Van De Water, chief of the Congressional Budget Office (CBO) projections unit. ''Any update is likely to be somewhat more optimistic, but I won't speculate if it will turn out to be as great as what Mr. Kudlow is predicting.'' Both the CBO and the OMB will release revised budget deficit estimates this summer.
Anticipating those updates, the Senate's budget resolution passed May 19 boosted CBO revenue estimates by $5.8 billion to reflect the nation's improved economic performance. The change ''was a modest updating for the economy's performance to date,'' Mr. Van De Water says. ''A more extensive revision would probably show more improvement than that.''
The reason is that the government's finances are clearly linked to the strength of the economy. ''As the economy strengthens, revenues will pick up. Profits pick up and (personal) income picks up and thus tax revenues pick up,'' notes Allen H. Gutheim, senior economist at Wharton Econometric Forecasting Associates.
But Mr. Gutheim cautions, ''Our view is that the difference in the recovery is not going to lead to that dramatic an improvement in the deficit, although we have the deficit a bit (lower) than the administration.''
In the budget year starting next October, Wharton is predicting a deficit of the deficit at $148 billion, almost 20 percent below the administration's $184.6 billion estimate. In addition to expecting a stronger recovery than OMB, Wharton's 1985 figure assumes Congress will repeal a plan to index tax brackets for inflation. President Reagan's budget assumes this revenue-reducing measure will take effect.
''The outlook is better than forecast by the administration and CBO,'' says Ronald Utt, deputy chief economist of the US Chamber of Commerce. ''But even with higher revenues we will still have a massive budget problem.'' The chamber is expecting fiscal 1984 revenues of $667 billion, some $13 billion higher than the administration's estimate. But Mr. Utt expects gains from higher revenues to be overwhelmed by increased congressional spending.
''Spending will be well above projections in the (House and Senate) budget resolutions,'' he says. ''Overspending in the past couple of years has averaged
''We should not take solace that faster growth now will reduce the deficit,'' William Helman, an economist at Smith Barney, Harris Upham & Co., wrote clients recently. ''The deficit problem can be solved only by policy actions on revenues and expenditures.'' (CHO IF NECESSARY)
A slowdown in the economy in 1984 is one reason government deficits will not fall faster, some economists say. The slowdown will be triggered by a collision between government borrowing to cover its debts and private credit needs, according to Robert Gough, senior vice-president at Data Resources Inc.
''That collision will put upward pressure on interest rates . . . ,'' he says. ''One thing you can count on is that business activity will slow,'' thus slowing tax collections.