Reagan Economic Forecast Too Rosy, Congressional Panel Says

President Reagan’s assertion that his budget proposals would lead to a surplus by fiscal 1991 requires rosy economic assumptions that history shows are extremely unlikely to prove true, the Joint Economic Committee of Congress said in a report released Saturday.

“The record is not encouraging--it raises serious doubts about whether, under current and proposed policies, we will achieve a balanced budget by fiscal year 1991,” the report, written by committee economist Paul Manchester, said.

The new deficit-reduction law requires a balanced budget by fiscal 1991, a goal that the Reagan Administration contends would be met if Congress ratified the proposals contained in the fiscal 1987 budget that the President submitted earlier this month.

The Administration proposal predicts steady economic growth through the next five years. That means the economic expansion that began in November, 1982, would have to continue at a brisk 4% pace to meet the Administration’s projection through fiscal 1991.

Economic Cycles Noted

The average peacetime period of economic expansion since 1946 has been 34 months. The longest lasted 58 months, from 1975 to 1980. The Vietnam War expansion period, from 1961 to 1969, lasted 106 months.

Thus, the current economic recovery, already mature by postwar standards, would become the longest in U.S. history, according to the President’s budget.

Basing the federal budget on such an assumption is not a realistic approach, Manchester said.

“It’s kind of like basing your family budget on the fact that you will win the lottery,” he said.

Sen. William Proxmire (D-Wis.), vice chairman of the committee, called the Administration’s economic assumptions a “feel-good scenario.”

Economic forecasts of the Ford, Carter and Reagan administrations, with few exceptions, have been too rosy, the report said.

The report suggested that the Administration, without being forced to predict a specific recession time, could incorporate a cyclical swing into its long-term projection to achieve a more reasonable forecast.

That approach “will be more accurate than those based on the assumptions of steady growth (in the economy) and annual decline in unemployment, inflation and interest rates,” it said.