The Congressional Budget Office said yesterday that prospective deficits should be reduced over the next five years by a cumulative $400 billion to $1 trillion to satisfy a variety of long-term budget policy goals.
Toward that end, CBO released a 355-page compendium of possible spending cuts and tax increases Congress could use to achieve those reductions.
"Reaching these objectives would reduce the 1988 deficits from the projected $267 billion to between $50 billion and $150 billion," the CBO said. That is what it would take to "curb the increase in the ratio of federal debt outstanding to GNP," it added.
The CBO warned that tax increases "during this recession could well make it worse and delay economic recovery. Even if tax increases are postponed until a recovery is under way, such increases could, if not carefully designed, inhibit long-term investment and economic growth."
In particular, the study said, the tax increases should "reduce disposable consumer incomes only when the economy has begun to revive; provide a long-term source of revenues for the tax system which cannot be accomplished by temporary measures, such as surtaxes ; and minimize disincentives to work, save and invest, and improve the allocation of investment resources."
Over the five years, 1984 to 1988, CBO said the Reagan administration proposes to spend $72 billion more for defense than intended when it adopted a budget resolution last year.
In budget authority, as opposed to actual outlays during the period, the administration is $85 billion higher. In its so-called baseline projections, which led to the CBO estimate of a $267 billion deficit for 1988, the lower military spending path is already assumed. If Congress were to decide that military outlays should go up no more than 5 percent faster than inflation, that would cut $20 billion in outlays over the period. Holding spending increases to 3 percent a year plus inflation would save $81 billion, still less than one-fourth of the total minimum deficit reduction CBO indicated is needed.