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Federal deficits are likely to remain above $180 billion through t

February 28, 1985

WASHINGTON (AP) _ Federal deficits are likely to remain above $180 billion through the end of this decade, even if Congress adopts all the spending cuts sought by President Reagan, the non-partisan Congressional Budget Office said Wednesday.

In a 141-page review of the president’s $974 billion budget for fiscal 1986, beginning Oct. 1, the CBO questioned the administration’s contention that adoption of the budget would cause the deficit to decline gradually to $82 billion by 1990.

Instead, the deficit would drop from its current level of just over $200 billion to about $186 billion and ″remain at about (that) level through the period,″ CBO Director Rudolph Penner told the Senate Appropriations Committee.

Meanwhile, White House budget director David A. Stockman rejected Democrats’ suggestions that the administration was using ″fake″ figures to support its budget projections.

He also denied that his outspoken attacks on certain programs like farm subsidies and military pensions might cost him his job.

″I plan to be here. ...I know (defending budget cuts) is a tough problem but I think I have something to contribute and I believe they know that downtown,″ he told the House Budget Committee.

Stockman took the occasion to criticize yet another spending program. He called an $8 billion fund to subsidize synthetic fuels ″a waste,″ and hinted it was included in the president’s budget only to please congressional leaders.

The CBO, in the first complete congressional analysis of Reagan’s latest budget proposals, said the administration’s projections of declining deficits after 1986 are based on brighter economic conditions than those foreseen by congressional economists.

For instance, although both the administration and the CBO predict that interest rates will remain between 8 percent and 8.5 percent throughout 1985, ″the administration assumes that real interest rates decline steadily after 1987,″ the budget office said.

Under the administration forecast, the three-month Treasury bill rate would decline from 8.2 percent to 5.0 percent by 1990. Under the congressional analysis, the rate would remain at 8.2 percent through 1990.

Administration projections also assume lower inflation rates and more rapid growth in the gross national product throughout the decade than those foreseen by congressional analysts.

″The budget outlook after 1986 depends critically on what assumptions are made about the performance of the economy,″ Penner testified.

The CBO report said that without any congressional action to reduce the deficit, federal red-ink spending will grow to $303 billion by 1990.

Under questioning, Penner said the president’s forecast of an $82 billion deficit by 1990 assumes that spending cuts will trigger lower rates of interest and inflation - an economic assumption not made by congressional analysts.

″There is a great deal of uncertainty among economists over the effect of policy changes,″ Penner said. ″I cannot say that the president’s assumptions are unreasonable.″

Murray L. Weidenbaum, an economist and former chairman of Reagan’s Council of Economic Advisers, also took issue with the administration’s contention that its budgetary plan can reduce deficits below $100 billion within six years.

″The deficit is more likely to reach $300 billion during the 1980s than $100 billion,″ he said, predicting that the higher figure will be the result of another recession.

Stockman defended the Reagan budget against attacks by Democrats on the House Budget Committee who charged that its figures deliberately were distorted to cloak a $30 billion boost in defense spending over 1985 levels.

″I think the numbers in your budget are cooked. They remind me of Alice in Wonderland. It’s not real. It’s fake. We’re duping the American people,″ said Rep. Charles E. Shumer, D-N.Y.

Shumer said the administration was claiming a $9 billion defense savings in the budget, but that this figure was not a real reduction but a theoretical cut from the budget compromised reached last year by Reagan and Senate Republicans.

″I think you’re overinterpreting a number of things,″ Stockman responded.

The budget director told committee members that ″we’re having a phony debate here,″ when Rep. William Gray III, D-Pa., the panel chairman, asked him whether the administration was really serious about reducing the deficit.

Gray said Reagan was hampering efforts at compromise by trying to put much of the blame for high deficits on Democratic Congresses over the past half- century.

Rep. Thomas J. Downey, D-N.Y., cited published reports suggsting that Stockman might soon be replaced.

″You’ve managed to astound everyone and make no one happy,″ Downey said.

It was Stockman’s first appearance on Capitol Hill since he was hospitalized briefly last week for a bout of dizziness.

″I appreciate all the cards and letters I got from this committee, wishing me a slow and prolonged recovery,″ Stockman joked.

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