Offering him a bleak economic forecast, Ronald Reagan's advisers yesterday urged him to seek immediate enactment of a tough program of spending reductions, coupled with a large, multiyear tax cut for individuals and businesses.
Reagan's specific reactions to his first briefing by his new economic advisers were not divulged, but Treasury Secretary-designate Donald T. Regan said that the president-elect "found it very interesting and wanted more information." Reagan also asked his aides for more options to limit spending.
One aide said Reagan has made a "philosophical commitment" to take these steps, and yesterday's briefing was the first in a series over the next two weeks that will lead to final decisions on specific budget actions.
Reagan also continued to fill top positions in his administration, telling Democratic senators at lunch yesterday that their former colleague, Mike Mansfield, would remain as U.S. ambassador to Japan, an announcement that the senators applauded. Reagan's staff said that Edwin L. Harper, a White House aide in the Nixon administration, has been selected as deputy director of the Office of Management and Budget, and announced that Terrel Bell has been chosen to be secretary of education.
Reagan's aides used the two-hour meeting at Blair House to press their view that the new administration must put its politcial capital on the line immediately, seeking controversial spending limits in popular federal programs to offset the substantial tax cuts and increases in defense spending that Reagan has promised.
As the president-elect began to confront these issues, he continued to receive conflicting advice from other quarters. Chairman Bob Dole (R-Kan.) of the Senate Finance Committee said yesterday that Congress should move immediately to cut taxes without waiting for an agreement on spending reductions.
Meanwhile, Federal Reserve Board Chairman Paul A. Volcker was telling the Senate Banking Committee that a tax cut this year should be linked to spending restraints, to prevent federal government borrowing from placing more strain on financial and credit markets and driving up interest rates once more.
Rep. David A. Stockman (R-Mich.), nominated to be director of OMB, said Reagan's aides told the president-elect that federal spending was escalating far more rapidly this year than expected.
"It is far worse today than we thought even in October," Stockman said.
The budget deficit for fiscal 1981 is likely to exceed $60 billion, with spending $45 billion above the estimate in June, Stockman said.
"If we don't put together a comprehensive, sweeping program" of tax cuts and regulatory changes, with "very major spending reductions," there will be no chance to balance the budget during Reagan's term, Stockman said.
If such a comprehensive plan is launched immediately and enacted by Congress by June, it could have a strong, positive impact on business confidence and the overall health of the economy, lowering interest rates and inflation by the end of 1981, Stockman said.
Rather than making inflation worse, as some critics fear, the individual tax cuts Reagan favors would provide the basis for a return to stable economic growth, Stockman said. "If we don't implement a tax program, it would be worse," he said.
Reagan's briefing from his top economic advisers came after he drove to the Capitol to seek to build a foundation for Democratic Senate support for his programs. Reagan had lunch with Democratic senators in the Mike Mansfield Room and used the occasion to announce that he had asked Mansfield to stay on as ambassador to Tokyo. Reagan said he will be the ninth president to hold office since Mansfield entered government.
The announcement brought a standing ovation from the Democrats, according to Tom Korologos, the chief of congressional relations for the Reagan transition.
Reagan and Senate Minority Leader Robert C. Byrd (D-W.Va.) exchanged pledges of cooperation after the lunch.
"I want to tell you frankly that I believe the problems confronting us are going to require bipartisan action and counsel and guidance. I've been privileged to have some of that advice already," Reagan said.
Byrd said: "I indicated to the president-elect our desire as Democratic senators -- a minority, for a little while -- to work with the president-elect, with the Republican majority of the Senate. I also indicated our gratitude for the suggestion that we meet, and our hope that as Democratic senators that we will have future meetings of this kind.""
All Democratic senators were invited to the luncheon and their remarks afterward indicated that they thought Reagan had gotten off to a good start with them.
Sen. J. Bennett Johnston (D-La.), who met privately with Reagan at Blair House, said he thinks that the president-elect has changed his mind and will "lessen the role" of the Energy Department, but not dismantle it. Johnston said he told Reagan that several functions of the department are essential.
Reagan promised during the campaign to abolish the department, but Johnston said he thinks Reagan now "recognizes he may have to rethink his position."
Reagan yesterday also filled the last department-head job in his Cabinet by nominating Bell, Utah's commissioner of higher education, to become secretary of education. The only post of Cabinet rank remaining to be filled is special trade representative, and Reagan indicated he may reduce that job to less than Cabinet rank. It is expected to go to Republican National Chairman Bill Brock.
Harper, who becomes deputy to Stockman at OMB, is a former Nixon and Ford administration official who has been vice president of Emerson Electric Co. since 1978. He will also have the title of assistant to the president in what Reagan press secretary James Brady said is an attempt "to forge a strong link between the White House policy development activities and the operations of the Office of Management and Budget."