Two of Ronald Reagan's leading congressional supporters have urged him to declare an economic emergency when he becomes president and try to force passage of a conservative version of the New Deal with substantial tax cuts, spending reductions and regulatory reform.
Unless Reagan moves decisively to dominate the Washington agenda in the first six months after his inauguration, his administration may rapidly be overcome by the pressures of stagnant growth, rising energy prices and inflation. Reagan's momentum would be gone, Congress would slip back into disorder, and the Republicans would have lost a "golden opportunity" to establish a new political majority in the country, Rep. Jack Kemp (R-N.Y.), and David Stockman (r-Mich.) have warned.
The two are leaders of a growing group of younger Republican conservatives in Congress whose platform of spending and tax changes goes far beyond traditional Republican doctrine; they think the current spiral of government growth and deficit spending can only be reversed by shock treatment. Kemp is one of the 13 economic advisers who presented Reagan on Sunday with a proposed economic strategy for his first term. Kemp and other Republicans are promoting Stockman as the best choice to head the Office of Management and Budget in the new administration.
Their proposed agenda for the new administration, described in interviews, includes the $13 billion in budget cuts in the current fiscal year that began in october, pledged by reagan during the campaign, and reductions of between $30 billion and $50 billion a year in the budgets for the 1982-83 fiscal years.
In the second category are proposed budget cuts of 10 to 20 percent in public works programs, including highways, mass transit, sewer treatment facilities, national parks, public works and airport facilities, which now total $25 billion annually. While these are necessary federal investments, their benefits could be delayed for a time until the financial crisis the two Republicans see has been overcome, theysay.
They also propose carefully targeted actions to narrow the eligibility limits and reduce waste and abuse in a range of individual aid programs other than Social Security. These could save $10 billion to $20 billion cut of an annual budget of $100 billion. Food stamps, Medicaid and disability payments, housing assistance, school lunches and unemployment compensation are candidates, they day. The goal should be to limit federal assistance to the neediest, while reducing taxes for those above strict poverty levels.
Finally, they say that "lower priority" spending in such areas as the space program, Comprehensive Employment Training Assistance, urban parks and other specialized programs could be cut by one third, or $8 billion.
They say that federal lending and loan guarantee programs could also be tightened.
While these budget changes are being worked on, a moratorium on new regulations and pending regulatory deadlines might be necessary, they say.
Although these proposals are admittedly controversial, Kemp and Stockman argue that the federal budget is running out of control, fed by an explosive growth in spending caused by persistent inflation and unemployment.
Between June and November, the estimates of federal spending in the 1981 fiscal year have soared from $613 billion to $649 billion, the two Republicans say (although some budget analysts say that the first number was set unrealistically low, magnifying the increase). Of that increase, $26 billion or 72 percent is due to spending triggered automatically by the country's economic weakness, they add.
Interest charges in the federal budget are now expected to add $3.2 billion to the spending total; $9.2 billion more will be spent on trade adjustment assistance payments, food stamp aid, unemployment compensation and other federal aid programs affected by the economy's deep slump this year. Also included in the $26 billion are increased spending on federal defense and public works programs as contractors seek to speed up work on federal projects as the private sector slows down, and inflated prices for fuel and other goods purchased by the federal government.
This increased spending is swelling the federal deficit, pushing the federal government deeper and deeper into the credit markets as it borrows to finance its growing debt, and thus pushing up interest rates for private borrowers. By year end, bank rates are likely to reach 15 to 17 percent, they predict, carrying the seeds for another collapse of the bond market, a new recession and attacks on the dollar next year, they say.
An economic stabilization program adopted during the 100-day emergency congressional session they propose, should begin with carefully targeted cuts in the fiscal 1981 budget, and tough, extensive reductions in the 1982 fiscal year budget. The potential for cutting the 1981 budget may have been overestimated by some, they say. Once spending for defense, federal interest charges and Social Security payments are set aside, only $159 billion remains to be cut in the 1981 budget -- and the year will be nearly half-gone before Reagan takes office, the two congressman note.
That leaves about $80 billion in available 1981 spending from which to make the $13 billion in budget cuts that Reagan has promised as the minimum effort in his first year.
But if the budget-cutters stop there, the whole effort will be in vain, they say.
In order to reduce the inflationary expectations that are now built into bond prices, deep cuts must be made spending authority in future budgets, they say, to persuade investors and the public that the corner has been turned on reducing federal spending. CAPTION: Picture 1, JOHN B. CONNALLY . . . might get Senate seat; REP. DAVID STOCKMAN . . . promoted as best choice for OMB