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> The budget is based on unrealistic economic assumptions. The Administration's official prediction is that if Congress enacts Reagan's spending and tax cuts, economic growth could be stepped up from 1.4% this year to 5.2% next, the inflation rate lowered from an anticipated 10.5% to 7.2%, and unemployment reduced from an expected 7.7% in this year's fourth quarter to an even 7% a year later. These predictions are largely based on an expectation that enactment of the program will break the national inflationary psychology. Snorted House Budget Committee Chairman James Jones, an Oklahoma Democrat: "We are not going to put out a budget based on mirrors and magic."
Alice Rivlin, director of the Congressional Budget Office, warns that if the Administration forecasts prove too optimistic, "higher inflation, higher interest rates, higher unemployment would all work to produce more federal spending and larger federal deficits"; that would spur still more inflation. A way of hedging against that outcome, Rivlin suggests, would be to cut back on the big indexed programs like Social Security, so that higher-than-expected rises in the CPI would not push up federal spending quite so rapidly.
The outlines of a budget compromise are beginning to emerge in Congress: liberal Democrats would vote to keep Social Security pensions and veterans' benefits from rising quite as fast as the CPI. In return, conservative Republicans just might go along with the Democrats in reducing the cuts in health, nutrition and other programs for the poor. New Mexico Republican Pete Domenici, chairman of the Senate Budget Committee, indicates support for such a compromise and predicts that Reagan might accept it too. Indeed, some congressional cynics suggest that the President is trying to maneuver them into taking the blame for cuts in Social Security and veterans' benefits that they believe the President knows are necessary.
Both the Republican-controlled Senate and the Democrat-controlled House are pledging speedy action on the budget. House Budget Committee Chairman Jones promises to wrap all the reductions that chairmen of other committees can agree on into one big spending bill by April 15. Moreover, he predicts that it will contain $25 billion to $30 billion in spending reductions. Jones' estimate is the lowest. Senate Majority Leader Howard Baker guesses that Reagan will get 90% of the reductions he wants, and Senate Democratic Whip Alan Cranston forecasts 75%.
For all the heartfelt doubts and objections aroused by Reagan's program, the President's landslide election victory and the speed and vigor with which his aides have put together a comprehensive budget program have transformed the political climate. There will be loud and bruising fights, but they will not be about whether to cut spending, nor even primarily how deeply to cut, but simply where to cut.
By George J. Church. Reported by Gisela Bolte and Johanna McGeary/Washington