New Figures Cut Defense-Funding Gap : Military: Improved inflation estimates narrow difference between White House and Pentagon from $50 billion to $30 billion. Clinton is still faced with politically difficult choices.

WASHINGTON —  The $50-billion gap between Pentagon budget needs over the next five years and the funding that Clinton Administration budget officials propose has been significantly narrowed by new inflation figures, senior White House and Defense Department officials announced Friday.

The officials, speaking after a meeting with President Clinton in the Oval Office, said the shortfall now appears to be about $30 billion. But even at that level, Clinton is still left with the politically perilous decision of whether to cut back the Defense Department’s five-year budget plans or use funds from domestic programs to close the gap.

“We are working on a number of possible resolutions, but it depends on what we do with the rest of the budget,” Clinton said. “We made a lot of progress today, and I was encouraged by the meeting.”

Defense Secretary Les Aspin notified Clinton last month that the defense budget was $50 billion short of reaching its goal to fund a five-year plan outlined earlier this year. The plan was part of a “bottom-up review” of the spending necessary to keep the military prepared to fight and win two wars at nearly the same time.

Officials said the $50-billion figure was originally based on last February’s estimate by the Congressional Budget Office that inflation would be 2.9% but that the Council of Economic Advisers recently forecast the inflation rate at only 2.3%.

“We’re looking at a better path in regards to inflation,” said one senior White House official. “We think that will moderate the problem.

“But it isn’t going to be easy,” the official said. “It’s obviously a very tight budget, but I am confident that we’re going to be able to work this out. We’re going to continue to work at it . . . and try to resolve this problem . . . before Christmas.”

National Security Adviser Anthony Lake, who attended the Oval Office session with Aspin and Budget Director Leon E. Panetta, said Clinton remains intent on maintaining a defense that is strong enough to win two nearly simultaneous wars.

“The President has previously committed himself and remains committed to” a level of defense, Lake said.

Retired Adm. Bobby Ray Inman, who has been nominated to succeed Aspin when he leaves office next month, has had some limited discussions with Clinton about the budget, the officials said.

“He’s discussed this in very general terms,” one defense official said. “But it was not a detailed discussion.”

Aspin said the shortfall was not foreseen because it stemmed from unexpectedly high inflation rates and a military pay raise passed by Congress this year. The $50 billion, he said, represents about 4% of the $1.2 trillion envisioned for defense spending over five fiscal years.