Rosy economic forecast rests on shifting ground
The administration's midyear economic review depends heavily on events which have not yet come to pass. It admits that interest rates have stayed stubbornly high. But the White House is still predicting a balanced budget by 1984, counting on further budget cuts and the passage of its controversial social security financing proposals.
The report, in essence, says that the political battle of the budget has just begun.
The midyear review, released yesterday, predicts a fiscal 1981 deficit of $55 .6 billion, up from the March estimate of $54.9 billion. But it predicts clearing economic skies by 1982, with a deficit of $42.5 billion instead of the previously announced $45 billion.
Government spending is predicted to markedly increase, mostly for reasons beyond Uncle Sam's control. Washington will have to shell out $6.1 billion more than it planned this year, and $9.6 billion more next year.
The spending overruns are "entirely attributable to higher interest rates than projected in March," says the report.
But government receipts are predicted to go up, too. In this the administration has received a political gift from the changes made in its proposed tax cut bill. Those dollars will keep rolling into the Treasury -- $5. 4 billion more this year, $12 billion more in 1982. Otherwise, the predicted deficit would have grown even larger.
But the importance of the report lies not in what it predicts for the short term, but in what it takes for granted about the long term.
Two points may be especially controversial:
1. The figures assume Reagan's social security financing proposals will become law. This accounts for $3.2 billion of savings in 1981, and $2.9 billion in 1982 -- spending reductions that were not figured into the March budget. The announcement of these proposals, in May, was not one of the administration's finer political hours. Rightly or wrongly, many pensioners saw them as an attack on their income. Criticism pelted in from many directions.