President Carter and his economic advisers are seeking to balance the 1981 budget as part of their antiinflation effort, but they have rejected the use of credit controls, it was learned yesterday.
The package of economic policy proposals, including about $4 billion worth of cuts this fiscal year and probably more than $15 billion for 1981, will be announced in a presidential speech sometime next week.
Meanwhile, it was also learned that House Budget Committee Chairman Robert N. Giaimo (D-Conn.) will urge his committee to propose a balanced budget in the resolution setting spending up later this month.
Committee sources said Giaimo probably will be able to presuade a majority of the committee to agree.
The federal government has not had a balanced budget since 1969.
Carter's advisers are known to be concerned that the specific budget cuts be credible in the sense that there is a reasonable chance Congress will go along. There have been extensive discussions with congressional leaders to rule out any cut that Congress simply would refuse to consider.
It is also understood the advisers are worried the public may be expecting more in the way of slashing spending than the administration can deliver.
They expect to be able to find about $4 billion worth of cuts for fiscal 1980, which is nearly half over. Even that will mean cutting spending at about an $8 billion annual rate without touching so-called entitlement programs like Social Security and with little change in defense spending, which has been running above earlier estimates.
Federal agencies yesterday as requested delivered to the Office of Management and Budget their own recommendations on where to make the 1980 and 1981 ctus in the programs over which they have some discretion. The total came to about $10 billion for 1981, it was learned.
In addition, the White House is considering 1981 cuts in entitlement programs, which would require legislation, as well as whether to withdraw a number of new program proposals on which Congress has not acted and whether to seek an end to such programs as revenue sharing with the states. These cuts along with the first $10 billion probably would have to total more than $15 billion if the budget is to balance.
The advisers are reestimating the cost of some programs on the basis of current information, and making new revenue estimates based on a revised economic forecast.
The forecast, not yet complete, is expected to show a shallower recession coming in the latter part of this year rather than a deeper one in the first half. Inflation is also expected to be somewhat worse than the 10.4 percent increase forecast in January for consumer prices this year.
The incomplete revenue and spending estimates make it hard to determine the exact impact of the spending cuts on the 1980 and 1981 deficits. The advisers are said to have concluded it will take about $20 billion worth of higher revenue estimates and spending cuts combined to achieve balance in 1981 even though the deficit was estimated in January at $15.8 billion. The 1980 deficit was pegged at $39.8 billion.
The contemplated budget cuts would not themselves have that great an effect on inflation; they would retard it only a few tenths of a percentage point; most economists agree. But experts in and out of government say the cuts would help create a climate of restraint that would reassure Wall Street and business, and possibly help forestall panicky price increases resulting from an inflationary psychology.
The tax likely will fall heaviest at the Labor Department, where up to $1.6 billion worth of cuts are expected in a variety of jobs programs in 1981. Under a Labor Department proposal drawn up at White House request, one-half that amount would come from cutting the number of public service jobs from the 450,000 originally planned for 1981 to 380,000.
An additional $434 million would be saved by cutting the summer youth employment program in half, from 1 million to 500,000 jobs. The Young Adult Conservation Corps program, which was supposed to provide 21,900 jobs for youths in national parks, would be scrapped to cut outlays an addtional $277 million.
Under a similar plan from the Department of Health, Education and Welfare, spending would be reduced by about $700 million, primarily in the areas of research and training.
The Department of Energy budget would be trimmed by up to $1 billion, perhaps by reducing planned purchases of oil for the strategic petroleum reserve.
Other proposed cuts include about $90 million from the Department of Transportation, from highway, airport and rail construction projects, and about $75 million from the Department of Housing and Urban Development, largely from its community development program.
Some private economists are already expressing skepticism at what the administration has in mind, however. Brookings Institution economist Arthur Okun declared, "Balancing the '81 budget is a sacrificial offering to atone for the mistake they made six weeks ago [in the original budget] but it is not a response to the serious inflation problem."
Okun said balancing the budget by $16 billion is spending cuts "will reduce inflation by 0.3 percentage points and lower the gross national product by 1.3 percent." That would have only "a minuscule effect on inflation and a significant, if not drastic, impact on employment."
Like a number of other economists, Okun suggested the use of credit controls and jawboning by the Federal Reserve Board instead of higher interest rate to curb the expansion of credit.
Carter's advisers, on the other hand, are known to have rejected credit controls of any type that puts a specific cap on the amount of money a business can borrow or sets the amount of down payment needed for a consumer purchase or the length of time in which the loan must be repaid.
The advisers feel credit controls of that sort are not workable and that an attempt to use them would set off a wild scramble to find financing some other way. They apparently were particularly disturbed at the scramble by businesses last week to borrow from banks when rumors that controls were about to be slapped on lending swept financial markets.
At the same time, the advisers have not ruled out asking the Federal Reserve to tighten its general restraint on credit -- which would mean still higher interest rates -- or that some very narrow use to be made of the Credit Control Act. of 1969. The act's sweeping powers might be invoked to close various loopholes lenders have found in Federal Reserve regulations and reserve requirements relating to the way banks acquire funds to lend.