Ronald Reagan's chief economic advisers are urging the president-elect to make an immediate, hard assault on federal spending next year, including cuts in some retiree programs that have been considered off-limits by Republican and Democratic administrations.
The 13 members of Reagan's economic advisory group who met here privately this weekend are expected to present a first-term strategy to Reagan Sunday.
Although it will be based on the economic proposals Reagan and his advisers agreed on in September, the new plan pushes much harder, advisers said.
It reflects the advisers' belief that Reagan's election coincides with a sharp conservative turn by the nation, giving Reagan the power to challenge Congress with demands for deep cuts in spending and broader tax-cut proposals. c
"The politis of this country are moving very rapidly. Things that were not possible in the Ford administration are possible now," said Alan Greenspan, a top Reagan adviser and former chairman of the Council of Economic Advisers under President Ford.
The advisers would not discuss specific spending recommendations on a list prepared for Reagan by Caspar Weinberger, former director of the Office of Management and Budget and one of the 13 advisers. But when Weinberger was asked today if the cuts included reductions in the automatic cost-of-living adjustment in federal payments to retirees, he responded, "Yes."
Weinberger did not elaborate on which payments he meant. "There are a lot of things on the laundry list," he said.
More than a simple trimming of administrative fat in the budget is being planned, Weinberger said. Substantial legislative changes will have to be made," he told reporters.
Several of Reagan's advisers said an assault on the federal budget has become the centerpiece of the strategy they are drafting. They see that as the only way a Reagan administration can bring down the double-digit interest rates on long-term borrowing by corporations and the government.
Unless these long-term interest rates begin to drop next year, the new administration could face a worse credit crunch than the one that jolted the Carter administration at the beginning of this year, Reagan advisers said.
"If long-term interest rates are still high through the spring and summer [next year], it would be very difficult to get anything going," Greenspan said in an interview.
Long-term rates will not come down until investors believe that the government has a credible plan for reducing inflation, not just next year but three, four and five years ahead, Greenspan said. And the only way to send that message is to cut back hard immediately on government spending programs, reducing their impact not only on the 1981 budget but also on future budgets, he added.
George P. Shultz, former secretary of the treasury in the Nixon administration, said the weekend strategy proposal would cover the entire four years of Reagan's first term.
Weinberger has said the new administration will seek to hold spending in the current fiscal year to $620 billion, the target proposed in September. That task appears much harder now than it did in September, because of an accelerating trend in federal spending.
Federal spending during the 1981 fisal year, which began Oct. 1, is now expected to reach $649 billion, according to the Congressional Budget Office. Reagan's September plan was based on expected federal spending of $633 billion in the current fisal year. A 2 percent spending reduction thus would have produced a final figure of $620 billion. The new, higher estimate of spending means that the Reagan administration and Congress will need to cut more than twice as much from the budget to reach the same $620 billion goal.
Without commenting on Weinberger's $620 billion target, Shultz said he agrees that "a very strong reduction in the budget is very possible. The new administration will have to pull up its sleeves and get into the rock and sock of it."
The Reagan camp's growing optimism about the new president's political clout has also led to recommendations for a broader tax-cut plan, advisers said.
Shultz would not spell out the plan, but he said he still favors the Reagan campaign proposal for 10 percent reductions in individual income taxes in each of the next three years -- the controversial Kemp-Roth proposal that Reagan advisers say will lead to significant increases in savings and investments. That was Reagan's initial plan, Shultz said, and "I'd expect he'd stick to it."
Several of the advisers were also pushing for reductions in the maximum tax rate on capital gains -- to 20 percent from the current 28 percent -- and for larger depreciation allowances on business investments in plant and equipment.
Greenspan said that in his view the focus on long-term rate reduction is critical and must be pursued even if tax and spending decisions cause short-term interest rates to remain high temporarily. "Maybe that's a necessary condition for getting significantly lower rates six or nine months out," he said.
"With the shift in political attitudes he [Reagan] has better than a 50-50 chance of succeeding," Greenspan said. "Despite the worsening of the short-term situation, I'm actually growing more optimistic about the long-term outlook."