Radical tax reform has chance: Penner
CONGRESSIONAL staff members are usually anonymous - heard, quoted, but not too often named. Any press fame is owed their bosses. Not so, however, for one key official, the director of the Congressional Budget Office (CBO). That job is now held by Rudolph G. Penner, and before him Alice Rivlin, who became well known in Washington circles, although perhaps not a household name.Skip to next paragraph
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Dr. Penner was in Boston this week to talk on a panel at the annual conference of the New England Council, a regional business association, which dealt with, you guessed it, ''Post-election Prospects for Reducing the Federal Deficit.'' The views of the head of CBO, the bipartisan congressional research facility, are prized enough to prompt a press conference. Here are some of his key positions.
* He has no quarrel with statements of Reagan administration officials that the budget deficit for this year could climb rapidly.
These officials first placed the fiscal 1985 deficit at $190 billion and then billion in the fiscal year that ended Sept. 30. The administration had been predicting $172 billion for fiscal 1985; the CBO, $178 billion.
''It is not surprising that it (the deficit) should go up,'' Penner said.
One reason is the slowdown in the economy. When the income of individuals and corporations rises more slowly, the government's share also climbs at a more languid pace. Also, Congress added some spending at the last moment, after the CBO and the administration's Office of Management and Budget had completed their budget projections.
Farm price support payments will rise more than expected as a result of large crops lowering prices. And the government will have to make a one-time $14 billion accounting change because the Internal Revenue Service questioned the tax-exempt status of short-term notes issued by the Department of Housing and Urban Development. HUD will have to borrow money through the Treasury, adding to the deficit.
* Contrary to the position of some supply-side economists, Dr. Penner sees a need for both tax boosts and spending cuts to reduce the deficit.
The CBO's budget projections, he notes, are based on a 4 percent average annual growth rate in national output for the seven years following the trough of the last recession (December 1982). That is the average rate of growth for seven-year periods after previous post-World War II recessions.
Penner says there is a 50 percent chance that growth could exceed the 4 percent annual rate, but also a 50 percent chance it could be less than that. Thus, he says, it is ''prudent for budget purposes'' to assume the average growth rate - a vital number in projecting future revenues and, to some degree, future spending. ''There are just enormous uncertainties out there,'' he said.
* Radical tax reform - some form of modified flat tax - has ''more chance than it has had in history,'' Penner says.
Reform has considerable support from both parties, with a Democratic proposal sponsored by Sen. Bill Bradley of New Jersey and Rep. Richard A. Gephardt of Missouri, and a Republican proposal sponsored by Rep. Jack F. Kemp of New York and Sen. Robert W. Kasten Jr. of Wisconsin. The Reagan administration also has plans for radical reform.
Moreover, said Penner, ''You have great disgruntlement with the tax system on part of the public.'' Many people consider it unfair and too complex. ''But,'' he added, ''that doesn't mean it (radical reform) will be easy.'' Each tax break , he pointed out, has special interests behind it that will likely resist abolishing it under the various proposed tax reforms.
* As a technical matter, Congress could slash government spending ''every which way.'' ''The more interesting question and more difficult to forecast is whether it is politically feasible.''
Dr. Penner noted that defense takes about 30 percent of spending, social security about 20 percent, and the interest on debt some 13 percent. President Reagan has declared the first two as untouchable, and, of course, the interest on debt must be paid. If those are ruled out, cuts would focus on about one-third of spending, involving programs such as education, transportation, and help for the poor.
Dr. Penner said the effect of small changes on major spending programs - defense, social security, medicaid - has a bigger impact. For instance, the CBO projects defense spending at $406 billion in fiscal 1989, assuming real growth of 5 percent a year. Congress cut defense expenditures a little, however, so the '89 figure is now at $387 billion.
Penner concluded that huge deficits could go on for a year or two without any great harm to the economy - as long as the government could borrow easily. But he is uncertain whether the confidence of foreigners in the United States will continue with a huge deficit. If confidence falters, they will lend less, the dollar will fall in value, imports will cost more, and inflation will rise. He figures it would be best for the government to tackle its deficit. Federal deficit forecast
FY'84 FY'85 FY'86 (projected) (projected) Source: US Treasury Department for '84 figure; administration officials for projections.