President-elect Ronald Reagan is seriously considering declaring a national "economic emergency" soon after taking office and calling on the new Congress to concentrate its actionson a plan to reduce taxes and federal spending, Reagan's chief of staff said yesterday.
James Baker III told reporters that economic policy is Reagan's top priority. "We feel it is important to move decisively and swiftly on the economy," he said.
The continuing deterioration of the economy is drawing Reagan's advisers around the "Dunkirk" strategy outlined last monty by Rep. David A. Stockman (R-Mich.) and Rep. Jack Kemp (R-N.Y.) calling for a bold, 100-day legislative campaign to push tax and spending cuts through Congress.
Stockman, Reagan's choice to direct the Office of Management and Budget, has warned that unless Reagan takes the initiative, his administration could soon be overwhelmed by economic problems -- a new recession broughton by high interest rates, and accompanied by high inflation, possible corporate bankruptcies and an unstable dollar.
Support for that strategy has emerged in meetings between Reagan's Cabinet selections and the Republican senators who will control the committees responsible for economic policy, Baker and congressional sources say.
The two groups are working with a new analysis by the Republican staff of the Senate Budget Committee that includes spending cuts of about $13 billion and a tax cut of $12.5 billion in the current 1981 fiscal year, which began in October.
The Budget Committee analysis assumes that defense spending will increase by 5 percent in the 1981 fiscal year, after allowing for inflation, with a 2 percent real or after-inflation increase in entitlements programs providing payments to veterans, Medicare recipients and others legally entitled to federal assistance, such as those on Social Security. There would be no real growth in other programs, under the staff analysis.
Under these assumptions, the analysis shows continuing escalation of federal spending, now expected total more than $663 billion in the current fiscal year, $30 billion more than the figure approved by Congress last month. This is mainly due to the state of the economy.
These figures may strengthen the case Stockman and Republican senators are making for decisive action on spending and tax policy early next year.
Sen. Pete V. Domenici (R-N.M.), who will be chairman of the Budget Committee, has said that the new spending estimates are "devastating" and should put the country on notice that all programs outside defense must be cut, even the individual payment programs.
Some of the economic advisers who are contributing to the transition planning have reservations about the "economic emergency" strategy, however.
Arthur N. Burns, one of the advisers, said in an interview this week that a declaration of economic emergency would be "just theater." But he agreed that Reagan's success with the economy will depend on his ability to inspire confidence through a credible budget program.
The Reagan team is being advised by others first to analyze the problems and recommend solutions, and only then decide whether the circumstances warrant declaring an "economic emergency." One test, perhaps, would be whether the president was planning to ask for unusual powers to implement his solutions. The only likely action of this kind would be in the budget area, where the president has only limited power to block spending by impounding congressionally approved funds.
Obviously, declaring an emergency would garner a flock of headlines, but it could also backfire if there are delays in implementing the proposed solutions -- such as if Congress decides not to pass key legislative proposals very promptly. It could also create wholly unrealistic expectations about how fast the problems associated with the emergency can be solved, one Reagan adviser said.