A Congressional Budget Office prediction of an inflation-caused $136 billion overrun in President Reagan's five-year defense program was rejected as unfounded by his budget director yesterday.
Even if such a "dramatic" figure should materialize, it should be put in context, David A. Stockman, director of the Office of Management and Budget, told a House Government Operations subcommittee.
The $136 billion is a cumulative total that would be added to the "very large base" of more than $1.5 trillion in projected defense spending by 1986, Stockman testified. And "it only amounts to 8 percent of the total base of [defense] spending that would occur during that period," he said.
Subcommittee Chairman Jack Brooks (D-Tex.), while assuring Stockman that "I'm not trying to cut you up," said he wasn't reassured. The CBO, he pointed out, traditionally has underestimated the impact of inflation on Pentagon budgets.
Stockman contended that the CBO has "no evidence" for its prediction of a mammoth overrun. In any event, he said, it cannot occur if Congress approves the federal spending cuts sought by the administration, because inflation then would decline at annual rates substantially under those forecast by the CBO.
The subcommittee's senior Republican, Rep. Frank Horton (N.Y.), was obviously skeptical, emphasizing that inflation at the Pentagon, especially for procurement of major weapons systems, has run at higher rates than in the economy in general.
As in past administrations, the Reagan administration binds Pentagon calculations of the effects of inflation to guidelines laid down by OMB for the entire federal establishment.
Horton cited the prediction of the defense-related aerospace industry that for the years 1981 through 1986 it faces an average annual inflation rate of 13.3 percent, compared, for example, to the administration forecast of an average of 7.6 percent for the economy as a whole.
"I must reject as unreasonable and unacceptable" the aerospace industry's 13.3 percent forecast, Stockman said.
He turned away pleas by subcommittee members and by the General Accounting Office for separate, "realistic" inflation guidelines for the Pentagon. "I cannot stress strongly enough the adverse impacts that the use of industry-derived projections of inflation can have on defense costs and on the national economy," he said. "These can best be described as self-serving and will, in fact, become a self-fulfilling prophecy as labor rates and overhead costs rise to the 'anticipated' inflation level."
As translated by Rep. Elliott H. Levitas (D-Ga.), that means that "we are going to use inaccurate rates [at the Pentagon] knowingly."
Another disagreement involved the Pentagon's report that the costs of 47 selected weapons systems increased $47.6 billion in just the final quarter of 1980. Stockman said that inflation accounted for only about $12 billion; Brooks said it accounted for $34 billion -- nearly three times as much -- partly because of "stretch-outs" of acquisitions.