The director of the nonpartisan Congressional Budget Office yesterday praised the budget resolution passed by Congress and predicted even lower deficits than forecast by the Office of Management and Budget.
CBO Director Rudolph Penner said the deficits beginning in fiscal 1986 would be below $200 billion, in contrast to recent OMB warnings that unless more is done to cut federal spending the deficits will be above $200 billion at least for the next two years. It is rare for the CBO to forecast deficits lower than what the administration sees.
Penner's deficit forecast is sharply higher than those prepared by the House and Senate budget committees, however, with the gap between the projections widening to $31 billion in 1988.
Nevertheless, Penner said the resolution pledging to cut about $56 billion from the 1986 budget and about $280 billion over three years "represents enormous progress from the drastic" projections made last year of deficits eventually reaching $300 billion. "I can't help but be upbeat about the tremendous progress Congress has made on this deficit," Penner said.
Penner's enthusiasm for the resolution contrasted with remarks by members of Congress. The leaders of the House and Senate budget committees said the resolution was the best that could be done under the circumstances, and high deficits would persist unless taxes were raised or major benefits programs such as Social Security were cut.
President Reagan said the budget compromise marked the beginning of the deficit-reduction process and this week he vowed to seek deeper cuts in spending.
Penner forecast deficits this year of $210 billion, dropping to $175 billion in 1986, $163 billion in 1987, $143 billion in 1988 and as low as $120 billion by 1990 if the congressional resolution is passed.
Congressional estimates are that the deficit would drop to $172 billion by 1986, $155 billion by 1987 and to $112 billion by 1988.
Penner said that if the budget resolution is implemented, for the first time since 1971 the government's interest expense as a share of gross national product will decline. Part of the reduction in interest payments, which has been the fastest growing part of the budget, is due to falling rates, Penner said.
The CBO director said he did "not want to imply that everything is wonderful given the projections we have made" and that with such historically high deficits the standard of living of Americans could decline. However, he said that Congress' action greatly improves the deficit picture compared with how badly it looked 18 months ago.
Penner said that so far, the economic recovery has been "remarkably average." He said there are no signs of an impending recession, but he cautioned that the size of the deficits "don't allow for any margin of safety. If the economy performs worse than expected," deficits could rise above $200 billion again.
Penner said he expected the economy to rebound in the second half of the year from the sluggish 1 percent rate of growth from January through June. However, he said, economic growth would increase at about a 4 percent rate in the second half rather than the 5 percent rate forecast by the administration.
Penner said that he, like many private and government forecasters, expects the recent declines in interest rates to encourage growth in interest-sensitive sectors such as residential construction and business investment.
He also said the decline in the dollar will improve prospects for a better trade position.
"Nevertheless, the economic outlook remains very uncertain," said the CBO economic and budget update released yesterday. "So far there are few clear signs that the projected pickup in growth has begun."
The CBO forecast real growth in gross national product to increase on a year-over-year basis by 2.6 percent this year, 3.6 perent in 1986, 3.4 percent in 1987, and 3.5 percent in 1988, 1989 and 1990. The administration several weeks ago forecast growth of 2.7 percent for this year, 4.2 percent next year, 4.0 percent in 1987 and 1988, 3.9 percent in 1989 and 3.6 percent in 1990.
The CBO is looking for stable inflation going as high as 4.5 percent next year and dropping to 4.2 percent from 1988 through the end of the decade, a forecast slightly higher than the administration's.
The civilian unemployment rate will drop steadily from 7.2 percent this year to 6.3 percent in 1990, the CBO forecast. The decline forecast by the administration is much steeper.