The incoming Reagan administration does not expect to balance the federal budget until its fourth year in office, a year later than the president-elect promised he would and two years later than he hoped he could, Treasury Secretary-designate Donald T. Regan said yesterday at his confirmation hearing.
Indeed, a hard look at the reality of the budget -- it could be $60 billion in the red this year -- by the new administration's economic policymakers evidently has created some uncertainty on whether it can be balanced even by 1984.
"If everything works well, and nothing else changes, we will see a balanced budget in the fourth year of a Reagan administration," Regan told the Senate Finance Committee.
Regan also predicted a renewed recession in the first half of this year with rising unemployment and continued high inflation. However, he said, "I do not plan to recommend to the president that we declare a state of economic emergency nor that he ask for special emergency powers. We must have a sense of urgency -- not a sense of emergency." Other Reagan advisers, including Rep. David Stockman (R-Mich.), named to be director of the Office of Management and Budget, have urged that an emergency be declared.
"It is out hope," Regan continued, "the president will be announcing his economic package within days or at most a few short weeks after taking office." eThat package will include major spending cuts, a 30 percent across-the-board personal income tax cut over three years, and business tax cuts, Reagan said.
Members of the committee asked few questions about the economic outlook and none at all about the level of unemployment. The concern about inflation was paramount with the committee and with Regan, who said, "It will be the highest priority of the Reagan administration to whip inflation somehow."
Two Democratic members, Sen. Spark M. Matsunaga of Hawaii and Sen. Daniel P. Moynihan of New York, asked Regan, the former chairman of the brokerage firm of Merrill Lynch, Pierce Fenner & Smith, about his involvement in a tax avoidance scheme -- under challenge by the Internal Revenue Service -- that Merrill Lynch has recommended to some of its customers. Regan defended his company's actions but said he personally had not used the scheme, known as the butterfly straddle, or personally suggested its use to any customer.
Regan's prediction that the gross national product, after adjustment for inflation, probably will decline this year as it did in 1980, is more pessimistic than those of either the Carter administration or most private economists. The Carter administration, in the forecast it will publich next week, will not predict a recession, but rather little growth.
Malcolm Baldrige, Reagan's choice for secretary of commerce, at his own comfirmation hearing echoed Regan's recession forecast. Baldrige said problems in the auto and housing industries and in agriculture mean the "economy is not going to go sideways in the first quarter, it's going to go down."
Regan told the Finance Committee that since it took 15 years for the country to get into its present economic difficulties, we are not going to get out of it in 15 days or 15 weeks." But he added that he expects to see a "gradual improvement over the second half of this year, and to see major improvement, if [Reagan administration proposals] are promptly enacted by both houses of Congress, within 15 months?"
The treasury secretary-designate has begun meeting weekly with Federal Reserve Chairman Paul A. Volcker to discuss monetary policy and the "evils" associated with overshooting the Fed's targets for growth of the money supply. the major "evil," he indicated, is high interest rates. An important part of the Reagan economic program, he explained, will be to "hold down inflation using monetary means . . . [but] doing it in such a fashion so as not to get interest rates too far out of line."
Sen. Charles Grassley, a newly elected conservative Republican from Iowa, took Regan to task for saying the budget would not be balanced until 1984. "I don't like to hear that," Grassley complained. "It sounds too much like business as usual" and is the same thing President Carter was saying in 1976."
Replied Regan, "We can balance the budget sooner that that if we make more cuts" that would require "very hard political decisions by Congress." The clear implication Regan left was that he and other administrative officials do not think Congress would cut that deeply.
Earlier in the hearing, Regan replied to a question from Sen. Steven D. Symms (R-Idaho) by declaring, "I am opposed to wage and price controls under any guise. This has been my position all along."
When Grassley's turn came, however, he noted that in a book published in 1972 Regan had written that President Nixon and his advisers had made the correct choice in 1971 when they imposed a wage-price freeze followed by controls. We live in a "political" world in which "pragmatic judgments" of that sort must be made, Grassley quoted from the book.
Regan denied there was any conflict in the statements, adding, "I see no need for price and wage controls at this moment . . . [and] short of involvement in war would see no need for price and wage controls."