U.S. OFFICIALS DISAGREE ON REDUCING DEFICIT
Senior U.S. Economic officials
disagree on the likelihood the government can meet its budget
deficit reduction targets.
    Beryl Sprinkel, chairman of the Council of Economic
Advisers, reiterated the Reagan Administration's opposition to
a tax increase and its pledge to reduce the deficit by cutting
spending and fostering economic growth.
    By contrast, Rudolph Penner, Director of the Congressional
Budget Office, said the budget process has broken down and the
deficit will remain close to 200 billion dlrs for fiscal 1987.
    Sprinkel told a symposium sponsored by New York University
that spending could be cut by avoiding decisions based on the
desire to influence votes and by shifting the responsibility
for local projects to state governments.
    He also suggested a line-item veto, which allows the
President to veto parts of bill without rejecting all of it, to
limit wasteful spending. Spending and taxing decisions should
be linked more closely.
    Sprinkel said the Administration still looks for 2.7 pct
growth in U.S. Real gross national product (GNP) in 1987 and
3.5 pct in 1988.
    Asked if the latest economic reports signal this rate of
economic growth is attainable, Sprinkel said, "It looks pretty
good to me. We've had two very strong employment reports."
    He also said federal reserve policy is appropriate, adding,
"It looks like they're on track."
    While further reductions are needed in the trade deficit,
Sprinkel said the lower dollar is having an impact.
    The new 1987 tax laws will not hurt the economy and the tax
reform act of 1986 significantly lowers tax rates and will
greatly increase private production incentives, he said.
    "Our estimates at the Council of Economic Advisers suggest
national net output of goods and services will permanently
increase by approximately two pct because of the long-run
consequences of tax reform," Sprinkel said. "In 1986, this would
have amounted to an increase of approximately 600 dlrs in the
income of the average American family."
    Sprinkel also argued the 1981 tax cuts were not responsible
for the large increase in the budget deficit.
    In fiscal 1986 ending September, federal spending amounted
to 23.8 pct of GNP, while federal receipts absorbed 18.5 pct of
GNP, leaving a deficit of 5.3 pct, he said.
    Sprinkel said that, compared with fiscal 1978, the 1986
federal expenditure share of GNP is 2.7 percentage points
higher and the revenue share of GNP is virtually the same.
    "Contrary to the conventional wisdom, therefore, the 1981
tax cut is not the root cause of the extraordinary budget
deficits of the past few years," Sprinkel said.
    "This tax cut merely rolled back the inflation-induced tax
increases that occurred between 1978 and 1981," he added.
    However, the Congressional Budget Office's Rudolph Penner
argued that the tax cut in 1981 was misguided.
    "Since making the big mistake in 1981 of cutting taxes
enormously without any plan to decrease spending by the
Administration or Congress, indeed with increases in defence
spending, now all the options (for reducing the budget deficit)
are unpleasant," he said.
    Penner said the tax cut resulted from the ideological
turmoil in the U.S. Caused by the "biggest sustained inflation
in our nation's history," which helped foster widespread
distrust of government.
    "The American people turned on the government with tax
revolt at the state level and new demands on the government at
the national level," Penner said.
    "But their dislike of taxes exceeded their general dislike
of spending programs. Now the correction of that 1981 mistake
demands that the system change a lot."
    Penner sees little hope the Gramm-Rudman-Hollings budget
deficit reduction targets will be met and said the deficit will
remain at roughly 200 billion dlrs this year.
    He said a budget process that sets targets arbitrarily is
not likely to succeed.
    "I feel pretty safe in saying that any process that tries to
dictate a numerical outcome from above is doomed to fail simply
because there's no ... Way to enforce it," Penner said.
    Penner questioned the methods by which the 1987 budget
deficit was cut. He said 18 to 19 billion dlrs were eliminated
by one-time measures, such as a temporary increase in taxes
related to tax reform and sales of government assets.
    "Another four billion dlrs was cut by what I call creative
timing changes, like moving the military payday from the last
day of fiscal 1987 to the first day of fiscal 1988. That saved
more than two billion dlrs," Penner said.
 REUTER
