PERSPECTIVE ON THE BUDGET : Too Many Sins to Be Credible : Unless we face up to the deficit and deal with it honestly, it will grow to even more dangerous proportions.

President Bush’s budget discussions with congressional leaders are a welcome development; we will not bring the deficit under control without cooperation between the executive and the legislature. But before that cooperation can yield a substantive solution, we will have to understand what brought us to this sorry turn--the 1991 deficit estimates skyrocketing from the Administration’s $100 billion in January to the Joint Economic Committee’s $175 billion to $180 billion in May.

The truth is that we have been playing games with the deficit in every year of the last decade. First we falsify the deficit’s size; then we use mysterious accounting devices, rather than solid policies, to wish it away. Unless we face up to the deficit and deal with it honestly, it will grow to even more dangerous proportions.

The best example of this manipulation is the document on which the current discussions are based. The President’s January budget submission contains seven sources of imprudence and overstatement--what I would call the “seven deadly sins of budgeting.”

--The first is an obscuring cloud of smoke in the form of optimistic economic assumptions. The great majority of private forecasters project less economic growth than the Administration. Optimistic forecasts of current-year growth by the Reagan and Bush Administrations have sometimes proved accurate; but other important economic and technical assumptions--such as the size of the Social Security cost-of-living adjustment, the rate of interest on the public debt or the costs of thrift deposit insurance--have been unfailingly too favorable. As a result, deficit forecasts under Gramm-Rudman have been consistently too low. And longer-term forecasts have been invariably rosy, creating the illusion that the deficit would melt away in just a few years. Needless to say, it hasn’t.

We do not need pessimistic economic and technical assumptions, merely realistic and prudent ones, of the character that any successful business would choose.

--The budget uses mirrors to make deficit reductions appear bigger than life.A frequently used device, which appears this year in the defense budget, is “management reforms.” The short-term cost savings of these changes, however desirable, are probably overestimated.

--The budget also contains penny-wise and pound-foolish policies whose ill effects outweigh the projected savings. Among such policies is the failure to provide the resources obviously needed to repair crumbling highways, bridges and other infrastructure, and to provide essential support for emerging democracies in Eastern Europe and Latin America and for indebted developing nations.

--Other policies merely pass the buck for necessary services to other levels of government. Examples include the Medicaid program in which states are mandated to provide added services with no additional federal funding; and also actual reductions in federal grants for sewage treatment plants and public housing modernization.

--Cut-now, pay-later policies are a favorite budget ploy; they make the deficit smaller now, but only by making it larger in future years. A key example in this year’s budget is the proposed capital-gains tax cut. The congressional Joint Committee on Taxation estimates that the Administration’s proposal would add to revenue in the first year but would lose money in every year after that.

--There are shell games in the budget that shuffle expenditures among categories or off the budget. An example is the elimination of indirect subsidies to the Postal Service, which would cut on-budget outlays but raise off-budget outlays, and eventually postal rates.

--Nonstarters are proposals that have been submitted several times before and never gained political support. Examples in this budget include Social Security taxation of certain state and local government employees, elimination of Amtrak subsidies and increased fees at public park land--each of which has been proposed in a budget at least three times in the past decade.

Altogether, my estimate is that only about $10 billion of the $36 billion of deficit reduction projected in President Bush’s budget is credible. The rest falls victim to the seven deadly sins. These sins also have been commited in congressional budget resolutions.

The American people are not fooled by Washington’s budget games. They know instinctively that our economic course is wrong; they know that we cannot spend well over $100 billion that we do not have year after year. Our problem is that we have been committing budgeting sins for so long that we have no credibility left.

The loss of credibility and public trust may be the most important cost of our decade of deficits. It is an enormous price to pay.