WASHINGTON, D.C.: Three years of efforts to trim the federal budget deficit are paying off, but President Clinton and the Republican leadership in Congress still have work to do to balance the budget by their target date of 2002. Congressional Budget Office Director June O'Neill told the Senate Budget Committee on Tuesday that the office has revised downward its deficit projections for the next five years, culminating with a $154 billion shortfall in 2002. That's $56 billion smaller than CBO projections of last May, but still larger than last year's $107 billion deficit. O'Neill warned that the revision does not necessarily make the task of balance easier, since there is now one less year in which to work, and because an economic downturn could once again explode deficits. Says TIME correspondent John Dickerson: "The win for both parties from balancing the budget is larger than the accumulated defeats they'll have to suffer to get there. Leaders in both parties believe that there is a political center out there that cares more about balancing the budget than about the individual programs involved." Next week, the President will present his draft 1998 budget, and the fiscal games will begin. The Clinton Administration today leaked details of tax-cut proposals intended to encourage higher education and spur employment of welfare recipients. The President is fulfilling campaign promises by offering the cuts, but he hasn't yet offered specifics on how they will be paid for. The Administration last week outlined a plan that would cut Medicare costs by more than $100 billion over the next five years. In the next few months, each party will be conscious not to expose its flank, but as negotiations wind down, Democrats and Republicans will have to decide whether they will hold hands and take "the leap." One test will be whether bipartisan agreement can be reached to recalculate the Consumer Price Index without resorting to accusing each other of selling out the elderly and the poor, whose entitlements are pegged to the CPI.