The Carter administration told Congress yesterday the impact of the recession on tax receipts and spending, along with higher outlays for defense, will boost this year's federal budget deficit to $60.9 billion and that the deficit for fiscal 1981 will be $29.8 billion.
The new economic forecast that accompanied the annual midsession budget review showed the recession ending in the fourth quarter of the year, with unemployment rising to between 8.5 percent and 9 percent early in 1981, and so slow a recovery in 1981 that unemployment would be nearly that high at the end of next year.
Consumer prices will rise 12 percent from the fourth quarter of 1979 to the fourth quarter of 1980, but at only about an 8.5 percent rate in the second half of this year. Next year prices will go up 9.8 percent, according to the forecast.
As expected, the administration continued to insist there should be no taxcut legislation this year, even though James T. McIntyre Jr., director of the Office of Management and Budget, declared, "These economic prospects are not acceptable to the administration."
McIntyre added, however, "It is quite likely that a tax cut will be desirable in 1981. But it is not appropriate to propose one now . . . the last months of a congressional session, in an election year . . . ."
The House Ways and Means Committee will begin hearings this morning on a possible tax cut, with Treasury Secretary G. William Miller the first witness.
Some members of Congress said the prospect of a $30 billion deficit for 1981 would make passing a tax cut before the election much more difficult, and perhaps impossible.
Rep. James Jones (D-Okla.), an influential member of Ways and Means who favors a tax cut, said, "That's not a very inviting picture they paint for us." He and other members of Congress have been told repeatedly by their constituents they are willing "to forego a major tax cut in order to balance the budget," Jones continued. "This is the worst of all worlds," with a large deficit even without a tax cut.
Congress' first 1981 budget resolution, adopted in June, called for a tiny surplus but nevertheless barely had sufficient support for passage, partly because it included room for a 13 percent jump in defense spending. Now, with a projected $29.8 billion deficit and defense outlays up to $157.5 billion -- $3.8 billion more than under the first resolution -- several members predicted it will be difficult and perhaps impossible to get a second resolution approved before the election, regardless of whether it includes a tax cut.
Sen. Henry Bellmon of Oklahoma, ranking minority member on the Senate Budget Committee, which begins hearings on the second resolution today, generally rejected the administration's new estimates. "I do not accept the sharp increase in unemployment that is now anticipated" and its impact on spending and revenues, he said. "In my judgment, the economy will become strong rapidly."
Bellmon noted that housing and autos, the two hardest-hit sectors of the economy, already have shown signs of turning around. With interest rates already down sharply, Bellmon is concerned that a tax cut putting a fiscal stimulus on top of one from the monetary authorities could "overajust" and reignite inflation.
Bellmon said he will be "pushing to hold off mark-up (of the second resolution) as long as possible" to get more information about the course of the economy. The second resolution assumed unemployment would average 7.5 percent during fiscal 1981.
Another Republican, House Minority Leader John J. Rhodes of Arizona, said the latest set of estimates "shows that the tough decisions needed to balance the budget still have not been made."
The administration estimates spending for fiscal 1981, which begins Oct. 1, will reach $633.8 billion. In January, when President Carter first sent the 1981 budget to Congress, the figure was $615.8 billion, and the deficit pegged at $15.8 billion. In March the budget was revised as part of a new anti-inflation plan, with estimated outlays trimmed to $611.5 billion. A new oil import fee, which Congress has since killed, some other new taxes and the impact of higher inflation so increased estimated revenues that a $16.5 billion surplus was indicated.
With a $29.8 billion deficit now forecast, the 1981 budget balance has swung $46.3 billion in four months.
Similarly, estimated outlays for the current fiscal year have climbed from $563.6 billion in January to $568.9 billion in March and on to $578.8 billion today. The deficit, put at $36.5 billion in March, is up to $60.9 billion.
The budget review said that estimated receipts have dropped by $15 billion for 1980 and $24 billion in 1981 from their levels in the March revisions, largely because of the drop in personal and corporate incomes, and therefore taxes due, associated with the recession.
Congress' action on the oil import fee will cut receipts by about $4 billion in 1980, according to the review. The administration still assumes Congress will pass its proposed 10-cent-a-gallon tax on gasoline and diesel fuel, which was to have replaced the fee, by next June 1. If it does not -- and at the moment most observers think there is little likelihood of its passage -- then another $3.5 billion would be added to the deficit for 1981.
On the spending side, increases in the cost of unemployment benefits will add $3.3 billion in 1980 and $9 billion in 1981, the review said. Other income security programs, including welfare, also will rise $500 million this year and about $1 billion next year because of the recession.
Defense spending is up $1.6 billion from the March estimates for 1980 and $6.9 billion for 1981. Part of the increase is due to congressional actions, but most of it is the result of higher costs for fuel, bigger military and civilian pay increases, and faster-than-anticipated spending under contracts let earlier.