That Bewildering Numbers Game

The budget resolution that the Reagan Administration wants the House to pass would hold federal spending in fiscal 1982 to $689 billion--or is it $710 billion? The alternative plan proposed by the Democratic leadership would cost $713.6 billion, or maybe only $692 billion. Depending on which proposal is adopted, the deficit next fiscal year could be $42.6 billion, or $31.4 billion, or $24.7 billion, or... well, pick a number. Any number.

Confused? So are many of the Congressmen preparing to choose this week between the Administration-backed Gramm-Latta resolution and the opposing measure crafted by James Jones, the Oklahoma Democrat who heads the House Budget Committee. The root of the problem is that anyone attempting to gauge the effect of proposed spending and tax cuts has to make a stab at forecasting what inflation, unemployment and interest rates are likely to be. A one-point rise in the jobless rate, for example, adds $30 billion to the federal deficit by increasing expenditures for unemployment compensation, welfare and the like, and by reducing tax collections. A one-point rise in interest rates adds $3 billion to $4 billion to interest payments on the federal debt; higher inflation raises all Government bills but also increases revenues by pushing taxpayers into higher tax brackets.

None of the protagonists is exactly snatching numbers out of the air; all have been advised by eminent economists and statisticians. Broadly speaking, the "supply-side" economists working for the Administration think that spending and tax cuts will bring down inflation, unemployment and interest rates fairly rapidly. The predominantly Keynesian economists who advise the Democrats expect a slower change.

Thus, the Administration predicts--and the Gramm-Latta proposal assumes --7.2% inflation next year, an interest rate of 8.9% on short-term treasury bills, and a 7% unemployment rate in the fourth quarter of 1982. The Democrats' figures are 9.9% inflation, 12% interest and 7.4% unemployment.

Spending under Gramm-Latta, which cuts social programs and increases military outlays about as much as Reagan wants, would be $689 billion under the Administration's assumptions, $710 billion if the Democrats' numbers are believed. Outlays under the Jones measure, which gives more money to social programs and less to defense, would be either $692 billion or $713.6 billion.

The differences in deficit estimates are crucial, because they sway judgments on how big a tax cut the nation can afford. The Administration and backers of the Gramm-Latta resolution, which includes the first stage of Reagan's cherished proposal to slash income tax rates 30% over three years, predict a deficit of $31.4 billion in fiscal 1982. No, says Jones, the red-ink figure would be $42.6 billion--whereas, under the Democrats' proposal for a more modest tax cut, the deficit would be held to $24.7 billion.

And what of future years? If Reagan's spending and tax plans are adopted, the Administration calculates that the budget will be balanced by fiscal 1984. The Democrats warn of a gargantuan $63 billion deficit. Most Congressmen in the end will probably vote their convictions--and hope for the best on the final results.

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