The rosy assumption

February 3, 1984

It seems hardly surprising that top administration officials - notably Budget Director David Stockman and White House economic adviser Martin Feldstein - are already backing away from the fiscal year 1985 federal budget sent up to Congress earlier this week.

There is good reason to do so.

As a political document - a ringing statement of objectives about what the nation's commitments should be - the budget is unmistakably clear. Its message about the purpose of government will surely be subject to intense philosophical debate within Congress and during the presidential election campaign.

As an economic document, however, the proposed $925 billion budget is raising fundamental questions from economists - in other words, concern that it is based on assumptions about future economic conditions that many analysts, including White House advisers Stockman and Feldstein, argue are unlikely to occur. It is precisely because the long-range economic assumptions in the budget (especially those involving future economic growth and the size of the federal deficit) are being questioned that Congress and the administration should begin immediate action to craft a budget that will more fully preserve the recovery now under way. At the least, the two sides should come together on something like the $100 billion deficit reduction ''down payment'' package proposed by Mr. Reagan. Such a package would have to include major tax increases as well as spending reductions.

Philosophical underpinnings: The budget document is a clear imprint of President Reagan's view of America's essential priorities: to ensure the national defense, provide increased economic and military support to smaller nations struggling to preserve democracy, reduce increases in nondefense spending, and prevent enactment of any major new tax increases.

Most Democrats, and some Republicans, of course, will argue that the Reagan view of government is too restrictive. They will ask whether proposed modest reductions in food stamps, student loans, welfare, low-income housing, and job training programs are inconsistent with the broader mandate of government in the United States ''to promote the general welfare.''

Economic underpinnings: The document is certainly ''realistic'' in recognizing that Congress is unlikely to accept deep spending cuts this year. But what must be asked is whether ''realism'' in this sense is the best course for the American people.

What is clearly needed is strong political leadership from both the White House and Congress to bring the deficits under control, and thus help reduce interest rates and protect the recovery that is now under way. Yet, the administration projects a deficit of $180 billion for fiscal year 1985 - with deficits staying in the $180 billion range through 1987, although falling as a percentage of gross national product. The projected deficits by themselves are far too high. Many economists also believe the estimates are unrealistically low.

The administration's long-range view for the economy is predicated, as one economist with Chase Econometrics points out, upon a ''lot of false hopes.'' The main assumption: that there will be continuing and high economic growth. But most private economists believe the economy will slow next year and that interest rates will rise, or at least stay at current high levels.

The administration projects real economic growth in each of the years from 1985 through 1987 at 4.0 percent, dropping slightly to 3.8 percent in 1989.

Chase Econometrics, characteristically of nongovernment forecasters, sees real economic growth for 1986 at 3.1 percent; 1987, 2.9 percent; 1988, 3.0 percent; 1989, 3.0 percent.

Data Resources Inc. similarly sees real economic growth in modest terms: 1986 , 2.6 percent; 1987, 3.2 percent; 1988, 3.4 percent; 1989, 3.0 percent.

Why would growth in 1986 be so much less than that projected by the administration (at 4 percent)? The reasoning goes like this. By mid-1985, Congress and the White House will finally recognize that the deficits are out of hand. A budget-reduction tax package will be enacted. That would take purchasing power out of the economy, thus slowing economic growth.

The point is, to fulfill the long-range economic assumptions that the White House projects for the next four or five years, the deficits will have to be tackled.