Bearer of Bad Tidings

By Charles P. Alexander.

Penner becomes director of the Congressional Budget Office

It's an ill office to be the first to herald I ill," wrote Aeschylus, the Greek tragedian, in the 5th century B.C. By that standard, the director of the Congressional Budget Office occupies one of the illest offices in Washington. Since becoming the CBO's first director when the agency was set up in 1975, Alice Rivlin has had the thankless task of telling Congress how big future budget deficits will be and proposing various alternatives, most of them politically unpalatable, for reducing the shortfall. After eight often frustrating years, Rivlin, 52, last week turned that role over to Rudolph G. Penner, 47, a conservative Republican economist with a strong distaste for deficits.

Rivlin's final forecast showed the budget gap hitting a record $207 billion this year and then falling gradually to about $145 billion in 1986. Penner's predictions may turn out to be gloomier. Before being named to the CBO post, he warned that if Congress takes no action to curb the deficit and another deep recession hits, the shortfall could reach $300 billion by the late 1980s. While Penner favors cuts in federal spending to help close the budget gap, he also argues that tax hikes are unavoidable. Says he: "The only real questions are how much taxes will be raised and in what way. It's going to happen."

Penner brings impressive credentials to the CBO. As chief economist for the Office of Management and Budget during the Ford Administration, he learned how to find his way through the thick forest of figures in the budget. After President Ford lost the 1976 election, Penner joined the American Enterprise Institute, a conservative research organization in Washington, and became a leading expert on tax policy. Says David Stockman, the Reagan Administration's Budget Director: "Penner is the best available person for the job at CBO. He's experienced, knowledgeable and technically sound."

Rivlin, a Democrat whom some Republicans accused of being too liberal, announced her intention to resign more than a year ago, but political wrangling delayed the selection of her successor. Rivlin endorsed Penner, as did the chairmen of the two congressional budget committees, Republican Senator Pete Domenici and Democratic Representative James Jones. But House Speaker Tip O'Neill attempted to block the choice, preferring a liberal Democrat for the job. Ironically, Penner's calls for tax increases have been putting him at odds with White House policy and rankling a few congressional Republicans. After Penner advocated higher taxes at an American Enterprise Institute luncheon in June, a reporter asked him, "How can you hope to have a chance at that CBO job when you say things like that?" Snapped Penner: "I refuse to run a campaign for the job. All I can do is say what I think and not worry about it."

O'Neill quietly pushed his own candidate: Democrat Robert Reischauer, 42, a former CBO deputy director with solid liberal credentials. This move outraged congressional Republicans, who rallied behind Penner, arguing that the Democrats had controlled the CBO throughout the agency's entire history. Said Colorado Senator William Armstrong: "It's now time that the Republicans took a turn at bat." In the end, O'Neill relented, and a congressional selection committee approved Penner 10 to 0.

Stirring political controversy is an uncharacteristic role for the professorial Penner, who speaks with an economist's jargon-laden monotone rather than a politician's fervor. Observes Jack Albertine, president of the American Business Conference, a Washington-based organization of medium-sized corporations: "Penner's a technician. He's more interested in doing the job than in getting publicity for himself." Instead of being a star of the Washington cocktail circuit, Penner prefers spending quiet times at home with Alice, his wife of 24 years, and their sons Eric, 16, and Brian, 14. He delights in sailing his Cal 25 boat, which he keeps anchored in Chesapeake Bay.

Love of the sea comes naturally to the Canadian-born Penner, whose father was a Great Lakes freighter captain. After graduating from the University of Toronto, he came to the U.S. as a scholarship student and got his Ph.D. in economics at Johns Hopkins. He became a U.S. citizen in 1973. Penner was on the faculty at the University of Rochester in the 1960s but spent much of that time as an economic consultant in such underdeveloped countries as Tanzania, the Dominican Republic and Liberia, where he worked to help strengthen the country's tax system. In 1970 he joined the staff of the Council of Economic Advisers and helped set up the Nixon Administration's wage and price controls. Later, as a deputy assistant secretary in the Department of Housing and Urban Development, he headed an innovative program that distributed Government vouchers to low-income people to help them pay for private housing.

Penner plans no major overhaul at the CBO, which has established a good record for professional economic analysis under Rivlin. He would like to have more success than she did in helping Congress find ways to cut the budget, but he recognizes how tough that task will be. "Defense, pensions, health payments and interest on the national debt account for more than 80% of Government spending," says Penner. "They're not going to be cut much, and you can't get a lot more out of what is left."

For that reason, Penner will be exploring ways to raise revenues. He opposes a sharp increase in income tax rates because that might depress the levels of saving and investment needed to spur growth. Instead, Penner generally favors tax reforms that will encourage saving rather than consumption. One example: a closing of the loophole allowing interest on consumer loans to be deducted.

If the Government's books are not brought closer to balance, Penner warns, the economic recovery may fizzle. "Everybody's concerned about the deficit. The problem is that there's no national consensus on how to close it." As CBO chief, Penner will present the options, but only his 535 bosses in Congress can make the hard decisions. --By Charles P. Alexander.

Reported by David Beckwith/Washington

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