Unless Congress makes more spending cuts the federal deficit next year will reach about $80 billion, nearly double the last official administration estimate, Alice Rivlin, director of the Congressional Budget Office, said yesterday.
And to balance the budget in fiscal 1984, when President Reagan has promised to do so, would take additional spending cuts of about $100 billion, Rivlin told unhappy members of the House Budget Committee. She said cuts that large would be needed even if strong economic growth resumes next year, as she predicted it will.
The prospect of such large deficits-- which mean more borrowing by the Treasury -- in the face of a restrictive monetary policy by the Federal Reserve has helped drive interest rates to near-record levels and badly bruised both the stock and bond markets. The high rates have also depressed the economy, hitting housing, farmers and small businessmen particularly hard.
The Reagan administration is already committed to additional budget cuts of about $15 billion for 1982, including for the first time reductions in projected defense outlays. Many members of Congress, after an August recess spent listening to constituents demanding relief from high interest rates, appear willing to go along with some cuts.
However, some members continued to search for other ways to get rates down. Sen. Ted Stevens (R-Alaska), for instance, proposed levying a "windfall profits tax" of 70 percent on anyone who charged interest rates more than 6 percentage points over the rate of inflation.
Meanwhile, some other Republican leaders told the White House there was little if any chance Congress would approve a plan to give President Reagan authority to "impound" appropriated funds in order to reduce spending. Republicans had proposed this earlier this week as the easiest way to control outlays. Yesterday, having taken soundings, they urged the administration instead to explore other means of obtaining further budget cuts, even though an impoundment bill may still be offered.
"The message has been sent downtown: it won't work and you'd better find some other way," said a Senate Republican aide. The aide said the Senate might vote narrowly for impoundment but that such legislation would have "a very tough time in the House." Congress stripped the White House of impoundment authority in 1974 after alleged abuses by President Nixon.
House Speaker Thomas P. (Tip) O'Neill Jr. (D-Mass.), obviously enjoying the new discomfort of the Republicans, brushed off the possibility of legislation aimed at lowering interest rates. "I don't know that we need legislation," O'Neill said.
"I think Chairman Paul Volcker and the members of the Federal Reserve have been following the policy of the president of the United States. He asked for tight money and he got tight money," the speaker declared.
"If we had won some of the fights, they could have blamed us . . . but the onus is on them . . . the ballgame is theirs now."
Budget Committee Chairman James R. Jones (D-Okla.), who warned repeatedly last spring that the administration was too optimistic in its assumptions about how the economy would respond to the Reagan tax and spending cuts, said, "There is little pleasure to be derived from warnings unheeded. I can only hope that the American people soon will recognize the economic fiasco we face."
Except for her estimates of looming budget deficits, CBO's Rivlin presented Jones' committee with an upbeat economic forecast that included predictions of a speedup in economic growth and declines in inflation and interest rates in 1982 and beyond. Real output will rise at about a 4 percent rate during 1982, while inflation, as measured by the gross national product deflator, will increase at about a 7 percent rate, she said. She predicted the unemployment rate late next year will be about the same as the current 7.2 percent rate.
These estimates, which Rivlin said are somewhat brighter than those of a number of private forecasters, are still not as optimistic as those of the administration. The latest Reagan forecast calls for 5.2 percent real growth in GNP during 1982.
There is an even larger difference on the respective forecasts for interest rates. The administration's July forecast predicted the rate on three-month Treasury bills would average 10.5 percent in 1982. The CBO forecast calls for an average T-bill rate of 12.4 percent next year. At the latest auction of such securities last Friday, rates reached 15.8 percent.
Several Democrats on the Budget Committee questioned Rivlin closely about CBO's assumption that interest rates would fall even if the Federal Reserve continued its present monetary policy and economic growth resumed. Rivlin agreed there was a substantial risk interest rates might not fall.
CBO's estimate of the 1982 deficit is larger than the administration's for several reasons, Rivlin said. First, both Congress and the administration have been assuming about $15 billion worth of budget cuts that so far have not actually been made. In addition, CBO believes defense weapons spending, which is largely the result of appropriations in earlier years, will be about $5 billion higher than administration estimates, while spending for a variety of programs such as food stamps, Medicare, Medicaid and farm support programs will also be up about $5 billion.
The difference between the CBO and administration forecasts on interest rates accounts for yet another $5 billion. The differences in predictions of economic growth mean CBO's forecast for federal revenues is $5 billion to $7 billion lower than the administration's.
Underscoring the difficulty of cutting the 1982 budget, which covers the year beginning Oct. 1, the House on a voice vote passed an $11.1 billion appropriations bill for the Department of Transportation and related agencies. It represented a $1.7 billion cut from current levels but was still $400 million higher than Reagan had asked.