Nobel Laureate Hits ‘Mickey-Mousing’ in Budget Plan

A Senate-passed program designed to force a balanced federal budget by 1991 is a “formulation for disaster” loaded with “Mickey-Mousing” proposals that will do little to reduce the budget deficit, this year’s winner of the Nobel Prize in Economics told congressmen Monday.

Franco Modigliani, an economics professor at the Massachusetts Institute of Technology, told a hearing of the Joint Economic Committee that the Republican-sponsored proposal is “entirely inadequate to face the problem” and a “mischievous” attempt at giving the appearance of fiscal responsibility, while delaying politically tough budget-cutting until after the 1986 elections.

Those contests are particularly crucial to Republicans, who hold a 53-47 majority in the Senate. Of the 34 seats up for election, 22 are currently in GOP hands.

Backed by Administration

The Reagan Administration has thrown its weight behind the Senate plan, authored by Republican Sens. Phil Gramm of Texas and Warren B. Rudman of New Hampshire. When asked to comment on Modigliani’s criticisms, White House spokesman Larry Speakes declined, adding: “I thought he was the fellow who painted the Sistine Chapel.”

The plan details a descending series of annual deficit targets over the next five years. If Congress failed to meet the goals, either through spending cuts or tax increases, the President would be required to cut spending below appropriated levels for most federal programs to meet the targets. Social Security, defense contracts and interest on the national debt would be exempted.

Modigliani, who was named a Nobel laureate last week, said that Congress should act immediately to halve the size of the deficit, which in fiscal 1985 topped $200 billion.

‘Don’t Have the Guts’

He said that the Gramm-Rudman plan would not mandate any significant cuts until 1987. “It tells future congressmen how to go about doing what we don’t have the guts to do now,” he complained.

He said that at least half of the future budget-cutting mechanisms in Gramm-Rudman are, “to borrow an expression from my grandson, plain Mickey-Mousing.”

“Others are positively harmful, like those establishing exceptions to the deficit-cutting procedure when, and only when, (federal) income is expected to decline,” Modigliani continued. “It has been shown repeatedly that such a formulation courts economic instability.”

Children’s Taxes Raised

He also called on lawmakers to show the courage to help trim the deficit by raising taxes, a solution both Reagan and most members of both parties in Congress have rejected. “Remember that if you refuse to raise taxes in the presence of a deficit, you are raising taxes anyway, though not those of our generation but those of your children,” he said.

A House-Senate conference committee is currently considering the budget-cutting plan, which the Senate attached as a rider to legislation raising the national debt ceiling to more than $2 trillion.

Secretary of the Treasury James A. Baker III has told lawmakers that on or about Nov. 1 his department will run out of all authority to borrow money and will have to curtail government spending unless the measure is passed. The department made a similar threat earlier this month as the Administration attempted to prod the Senate into accepting the Gramm-Rudman rider, but came up with a temporary emergency financing plan that Baker says cannot be repeated.

Sees Vote Next Week

Sen. Bob Packwood (R-Ore.), who is chairing the conference committee, told panel members that he hopes to vote next week--only days before the Nov. 1 debt deadline--on revisions to the Senate budget plan.

Meanwhile, Sen. Robert C. Byrd (D-W.Va.), the Senate minority leader, told reporters that he had urged House Speaker Thomas P. (Tip) O’Neill Jr. (D-Mass.) to press for alterations that would require the budget to be balanced in four years rather than five and mandate significant cuts before the 1986 elections rather than after.