In an exceedingly pessimistic and critical report, the Democratic majority of the Joint Economic Committee broke with President Carter yesterday, forecasting an "unfavorable" economy in 1978 that might even turn into a "growth recession."

A "growth recession" is one in which the gross national product edges forward so slowly that the rate of unemployment rises, according to the committee definition.

In its 1977 mid-year review, likely to become a controversial document, the committee, an influential non-legislative panel that studies and reports on economic policy for both houses of Congress also:

Called for "indexing" the tax system to take account of inflation. Among related measures proposed would be an "inflation proof" government bond for small savers.

Suggested in effect, that both Congress and the Federal Reserve system were too closely following "monetarist" doctrine that requires a moderate and altogether steady growth in the money supply. The report called for a major expansion of money growth targets.

Proposed a reduction in payroll taxes, which it said raise labor costs, contributing to unemployment and inflation. Use of part of the proceeds of energy taxes, to lower local sales and excise taxes, was also recommended.

The report contained some of the sharpest criticism yet of Carter's economic policies from within his own party. It said that the effort to control inflation by restricting total demand is an "abysmal and costly failure." Withdrawal of the $50-a-person tax rebate was called "short-sighted." And [TEXT OMITTED FROM SOURCE]