U.S. OFFICIALS DISAGREE ON REDUCING BUDGET DEFICIT Senior U.S. Economic officials disagree on the likelihood the government can meet its budget deficit reduction targets. Beryl Sprinkel, chairman of the Council of Economic Advisers, reiterated the Reagan Administration's opposition to a tax increase and its pledge to reduce the deficit by cutting spending and fostering economic growth. By contrast, Rudolph Penner, Director of the Congressional Budget Office, said the budget process has broken down and the deficit will remain close to 200 billion dlrs for fiscal 1987. Sprinkel told a symposium sponsored by New York University that spending could be cut by avoiding decisions based on the desire to influence votes and by shifting the responsibility for local projects to state governments. He also suggested a line-item veto, which allows the President to veto parts of bill without rejecting all of it, to limit wasteful spending. Spending and taxing decisions should be linked more closely. Sprinkel said the Administration still looks for 2.7 pct growth in U.S. Real gross national product (GNP) in 1987 and 3.5 pct in 1988. Asked if the latest economic reports signal this rate of economic growth is attainable, Sprinkel said, "It looks pretty good to me. We've had two very strong employment reports." He also said federal reserve policy is appropriate, adding, "It looks like they're on track." While further reductions are needed in the trade deficit, Sprinkel said the lower dollar is having an impact. The new 1987 tax laws will not hurt the economy and the tax reform act of 1986 significantly lowers tax rates and will greatly increase private production incentives, he said. "Our estimates at the Council of Economic Advisers suggest national net output of goods and services will permanently increase by approximately two pct because of the long-run consequences of tax reform," Sprinkel said. "In 1986, this would have amounted to an increase of approximately 600 dlrs in the income of the average American family." Sprinkel also argued the 1981 tax cuts were not responsible for the large increase in the budget deficit. In fiscal 1986 ending September, federal spending amounted to 23.8 pct of GNP, while federal receipts absorbed 18.5 pct of GNP, leaving a deficit of 5.3 pct, he said. Sprinkel said that, compared with fiscal 1978, the 1986 federal expenditure share of GNP is 2.7 percentage points higher and the revenue share of GNP is virtually the same. "Contrary to the conventional wisdom, therefore, the 1981 tax cut is not the root cause of the extraordinary budget deficits of the past few years," Sprinkel said. "This tax cut merely rolled back the inflation-induced tax increases that occurred between 1978 and 1981," he added. However, the Congressional Budget Office's Rudolph Penner argued that the tax cut in 1981 was misguided. "Since making the big mistake in 1981 of cutting taxes enormously without any plan to decrease spending by the Administration or Congress, indeed with increases in defence spending, now all the options (for reducing the budget deficit) are unpleasant," he said. Penner said the tax cut resulted from the ideological turmoil in the U.S. Caused by the "biggest sustained inflation in our nation's history," which helped foster widespread distrust of government. "The American people turned on the government with tax revolt at the state level and new demands on the government at the national level," Penner said. "But their dislike of taxes exceeded their general dislike of spending programs. Now the correction of that 1981 mistake demands that the system change a lot." Penner sees little hope the Gramm-Rudman-Hollings budget deficit reduction targets will be met and said the deficit will remain at roughly 200 billion dlrs this year. He said a budget process that sets targets arbitrarily is not likely to succeed. "I feel pretty safe in saying that any process that tries to dictate a numerical outcome from above is doomed to fail simply because there's no ... Way to enforce it," Penner said. Penner questioned the methods by which the 1987 budget deficit was cut. He said 18 to 19 billion dlrs were eliminated by one-time measures, such as a temporary increase in taxes related to tax reform and sales of government assets. "Another four billion dlrs was cut by what I call creative timing changes, like moving the military payday from the last day of fiscal 1987 to the first day of fiscal 1988. That saved more than two billion dlrs," Penner said.