The Congressional Budget Office said yesterday that, even if Congress does everything President Reagan has asked, his budget will produce a fiscal 1983 deficit of $121 billion, nearly $30 billion more than he claims.
It also said that, contrary to his claims, his spending plan would mean "large and growing federal deficits into the foreseeable future," and not the declining deficits he has forecast.
The CBO said that, even if Congress were to pass all the spending cuts and revenue increases Reagan has proposed, future deficits will vastly exceed his expectations because his budget office has underestimated what major programs will cost, overestimated what some taxes will yield and been overly optimistic about interest rates and other key elements of the economy.
With Congress already gagging over Reagan's projection of a $91.5 billion deficit for next year and supposedly decreasing deficits thereafter, the CBO analysis is sure to add momentum to the already fast-moving effort in Congress to find a bipartisan alternative.
In testimony before the Senate Appropriations Committee, CBO Director Alice M. Rivlin said Reagan's budget presents a "very grim outlook" of ever-growing deficits adding up to $390 billion by 1985--$144 billion more than the $246 billion in cumulative deficits that Reagan projects over the next three years.
Moreover, she said, there is "significant risk" that the deficits could rise even higher if the economy does not perform as well as both the administration and CBO anticipate. If this happens, she said, the 1983 deficit could be $132 billion, with a total three-year deficit of $471 billion, roughly double what the administration predicts.
The conclusions of the nonpartisan CBO undercut most of the arguments that the administration has made for its budget, including claims that the 1983 deficit stems from the current recession and that economic growth arising out of the Reagan program will lead to continually smaller deficits in the future.
"Unfortunately, the budget problem facing the U.S. Congress is not recession-related," said Rivlin. "It is rather a problem of continuing large and growing federal deficits into the foreseeable future . . . . No clear rationale exists for the persistence of deficit spending year after year, and the distinct possibility exists that large and rising deficits could seriously impair the overall performance of the economy over the longer run."
Lending support to Republican as well as Democratic leaders who are demanding radical revision of the Reagan budget, Rivlin said that "to reduce the risk of continued economic instability . . . the Congress may wish to consider possible alternatives," a bold suggestion for the normally cautious and even noncommittal CBO.
The CBO, whose record for budget projections has generally been closer to the mark than that of administration economists, based its higher deficit projections on less optimistic expectations for economic recovery, revenue collections and the cost of spending programs such as defense and farm price supports.
Farm price supports alone would account for $5 billion in additional spending, according to the CBO. On the other hand, it estimates that receipts from Outer Continental Shelf oil and gas leasing will be $5 billion less than the administration expects.
It said the Reagan budget overestimated revenues by $5 billion for 1983, $13 billion for 1984 and $16 billion for 1985. For the three years, spending was underestimated by an annual average of $20 billion, it said.
Overestimated revenues and underestimated spending accounted for about $100 billion of the $144 billion in deficit disparity between the administration and the CBO for the 1983-85 period. The rest stemmed from less optimistic assumptions by the CBO about the economy's performance, which has a major impact on both revenues and spending.
In general, the CBO was less optimistic than the administration about inflation, interest rates and economic growth in 1983 and about employment as well in 1984 and 1985.
The biggest difference for 1983 came in the area of interest rates, with the administration predicting a short-term Treasury bill rate of 10.5 percent and CBO predicting a rate of 13.2 percent. While the administration predicted a real (after inflation) national growth rate of 5.2 percent for 1983, CBO predicted 4.4 percent. The administration assumed a 6 percent inflation rate for the year; the CBO assumed 7.3 percent.
In suggesting that even its own deficit estimates may turn out to be low, the CBO said defense spending could be underestimated by $109 billion through 1987 if the Pentagon doesn't trim its buildup program to take account of added costs that CBO expects.
The CBO's actual estimates for those years are $120 billion, $128.9 billion and $139.6 billion respectively. The administration's estimates are $91.5 billion, $82.9 billion and $71.9 billion respectively.
For fiscal 1982, the administration projects a deficit of $98.6 billion and CBO $111.1 billion.
There was little reaction to Rivlin's testimony from Appropriations Committee members, few of whom were in attendance as she spoke. Some Democratic sources said she just confirmed what Democrats had been saying all along: that Reagan's deficit was underestimated.
"The CBO report dramatized the absense of realism in the Reagan budget," said House Budget Committee Chairman James R. Jones (D-Okla.), saying it underscores the need for a "bipartisan budget." Republicans were conspicuously quiet.
Appearing at the hearing before Rivlin submitted her report, Treasury Secretary Donald T. Regan brushed off proposals for an income surtax or rollback of future tax cuts to help balance the budget.
In an apparent reference to a proposal by Senate Majority Leader Howard H. Baker Jr. (R-Tenn.) for an income surtax of up to 10 percent, Regan said President Johnson's 1968 surtax led to a decline in economic growth, rise in unemployment and bigger budget deficits later .
"For years we have attempted and failed to balance the budget with higher taxes," said Regan. "We have only succeeded in wrecking the economy."