President Carter's top budget planner said yesterday he believes the administration should propose a near-balanced budget next January, without a major tax cut, despite last week's dramatic interest-rate boost by the Federal Reserve.
Budget Direct James T. McIntyre told reporters it is "very difficult to predict any major changes in the economy on the basis of the Fed's action." tHe said achieving a balanced budget still is "a very high priority."
McIntyre's assessment of the Fed's action appeared to conflict with those of many private economists, who have warned that the past weekend's rise in interest rates will intensify the predicted recession.
A deeper recession would mean higher federal outlays for jobless and welfare benefits, resulting in a larger federal budget deficit and making it impossible to balance the budget. It also would create pressure for a tax cut.
However, McIntyre said yesterday, "I don't see a need for any change in fiscal policy. We are not recommending additional stimulus," he said. "We're not thinking about tax options at this time."
It was not immediately clear whether McIntyre's views would prevail when the president makes his final decision on the tax-cut-issue, probably in December. Other Carter economic advisers are said to favor a tax reduction. d
Treasury Secretary G. William Miller also has come out against a tax cut despite the Fed's recent interest-rate hike.Miller warned on Monday such a move would only "feed the fires of inflation."
The president vowed at a news conference tuesday to go along with the Fed's new policies even if it ultimately hurt him politically. Carter told reporters he would "do whatever it takes" to combat inflation.
McIntyre said he will urge Carter to propose a budget next January that again will hold spending to barely what is needed to offset inflation. He said that would involve limiting outlays to just below $600 billion.
The budget chief's target would mean a cut of $8 billion to $10 billion from the spending level that would be set if the administration simply adjusted key programs for inflation to continue current policies intact.
However, McIntyre acknowledged that domestic programs once again would bear the brunt of any squeeze because Carter plans to boost defense outlays another 3 percent above inflation, in part to placate Senate hawks.
McIntyre conceded that with the presidential election campaign in sight, "the pressures on the budget are going to be immense." But he said the cutbacks must be made because the $600 billion figure "is too high."
McIntyre's assertion that the budget still could be pushed near balance in fiscal 1981 was based on a conviction that the recession will he a mild one -- a view not shared by most economic analysts these days.
The budget chief said he believes the administration's initial projections that the economy would decline only half a percentage point this year increasingly "are looking good." Inflation also is bloating government tax receipts.
However, many analysts believe the pickup in the economy expected for the current quarter will be only a temporary phenomenon, and that the jobless rate will rise next to as high as 8 percent.
Several leading economists said Monday they believed the Fed's action over the weekend would only worsen the recession, particularly if interest rates remain high, as many analysts now expect.
But McIntyre asserted yesterday the impact may be blunted if last Saturday's increase proves only temporary. He insisted that despite the sweeping nature of last weekend's actions, the Fed "has not changed" its monetary targets.
McIntyre also disclosed that preliminary estimates show the government ran a $29 billion budget deficit in fiscal 1979, which ended Sept. 30 -- about$3 billion below previous expectations.
The budget chief said a spending total of just under $600 billion for fiscal 1981 would leave the government's share of the Gross National Product at 21.6 percent, about the same as in the current year.
Carter pledged during the 1976 presidential campaign to squeeze government spending to below 21 percent of GNP, from 23 percent in fiscal 1976, but so far has found that goal elusive.