The economic consequences of quickly implementing the proposed balanced-budget amendment could be "disastrous," the director of the Congressional Budget Office testified yesterday.
Alice M. Rivlin said that it would force deep further cuts in defense and domestic spending, a huge further tax increase or some combination of the two, and in any case would severely crimp an economy struggling to survive the recession.
" . . . The amount of reduced outlays or increased taxes called for by the amendment could endanger the economic recovery and create widespread dislocations if the amendment is implemented at an early date," she said.
She testified on the possible consequences the day after the Senate by a vote of 69 to 31 approved the proposed amendment, which would require balanced budgets unless Congress voted by a three-fifths majority to allow a deficit in a particular year or unless the country were at war.
The amendment now moves into the more hostile territory of the House, where it is opposed by the Democratic leadership and the chairman of the Judiciary Committee, Rep. Peter W. Rodino Jr. (D-N.J.). Supporters are trying to pry a slightly different version of the amendment out of the committee through a discharge petition.
Rodino, who has been accused of bottling up the amendment, announced yesterday that his subcommittee will begin marking up late next week some form of budget-balancing legislation despite his opposition to the one passed by the Senate.
It appeared, however, that this process would be lengthy and that the final product might bear little resemblance to the versions now pending.
In an interview, Rodino said it would be "a matter of weeks" before the subcommittee could report out anything and he made it clear that his preference is for a statute, not a constitutional amendment. Those who favor an amendment have insisted that no statute could bind Congress to balancing the budget.
Other members of the subcommittee, both Republicans and Democrats, have also voiced strong doubts about the Senate-passed amendment this week. The strongest supporter of an amendment, Rep. Robert McClory (R-Ill.), indicated yesterday he favors one considerably different from the Senate version--one that would produce a major change in federal fiscal practices by creating a separate capital budget for long-term expenditures.
Rivlin's testimony before the subcommittee was the first detailed estimate of what Congress would have to do if an amendment were passed and ratified by the necessary 38 states before October, 1983, and its terms put into effect in time for the 1985 fiscal year.
Basing her projections on the budget resolution Congress passed in June and on recent forecasts by her office, Rivlin forecast a deficit for fiscal 1985 would be between $163 billion and $178 billion. That includes some $20 billion in off-budget outlays which, under terms of the amendment, would have to be included.
To wipe out that deficit and satisfy the new amendment, she said, Congress would either have to cut spending "abruptly" or raise taxes sharply and the effect of either on a recovering economy could be "severe," she added.
"The initial reduction in incomes of taxpayers, or of entitlement recipients, or of firms selling goods and services to the government would set off a chain of declining purchases, reductions in output, and job-cutting," she said.
The burden of cutting back on spending inevitably would be heaviest on national defense and the so-called entitlement programs because only they are large enough to permit reductions of the magnitude required, Rivlin said. If the cuts were concentrated on other parts of the budget those parts would be "wiped out," she said.