Treasury Secretary Donald T. Regan and Senate Budget Committee Chairman Pete V. Domenici (R-N.M.) said yesterday that federal welfare, pension and medical programs will have to be curtailed to reduce the mammoth budget deficits anticipated in fiscal 1983 and 1984.
In separate television interviews, they said the politically sensitive "entitlement programs" such as pensions and food stamp assistance, which provide federal payments to tens of millions of individuals, are growing faster than the rate of inflation, and the formulas by which they are calculated will have to be revised downward.
Regan, appearing on "This Week with David Brinkley," (ABC-WJLA), was resolutely optimistic that the current recession will end and the economy surge back to healthy growth by mid-1982. The recession is at its worst in the current quarter, he said, and the economy "will be coming back" by late summer, with a real annual growth rate of possibly 5 1/2 or 6 percent.
But even so, he said, the fiscal 1983 budget that President Reagan will submit to Congress in January will probably project a deficit in the "$60 billion to $75 billion range," which means "we are going to have to get into the entitlements sooner or later."
Basic Social Security payments should not be touched at least until a presidential commission finishes a study of the benefits, Regan said, but "we have to look at Medicaid, we have to look at pensions, we have to look at the cost-of-living indexes and what has been going on."
In the current fiscal year, he said, recipients of payments keyed to increases in the cost of living would receive benefit increases of 11 percent. "We know inflation isn't going to be 11 percent this year, so they are being overcompensated," he said. "Something is wrong there, and in such an expensive program something has to give, and I think it is in changes of that nature that we will be looking at the '83 and '84 budgets."
Regan acknowledged that it would be difficult to persuade Congress to accept major changes in the social welfare programs. He argued, however, that opinion polls show popular support for federal budget cuts, and therefore "if people want to get elected, I should think they would want to do what the electorate wants them to do, which is to cut this federal budget even deeper."
Domenici, on "Face the Nation," (NBC, WRC), said it would be necessary to reduce the growth in the payments programs--not the level of benefits, but the amount by which they are escalating under current formulas--as part of a plan to reduce the budget deficit.
He predicted that President Reagan's budget proposals for 1983 will "set the fiscal policy of this country on a path that dramatically cuts deficits in '83 and '84."
The first step, Domenici said, is that the entitlement programs "are going to have to be reformed and their growth is going to have to be curtailed." If the currently projected growth in such outlays were cut by 25 percent, he said, the government would save almost $40 billion in 1983 and 1984.
Unlike Regan, he did not exclude basic Social Security benefits from his projections. The system is "in trouble," Domenici said, and "unless we want to increase the taxes enormously we are going to build the reserves. To build the reserves you're going to have to cut back on the growth . . . there is no way out."
In addition, he said, outlays for federal programs such as aid to cities would have to be limited and corporate "legal tax loopholes and tax breaks that don't have any social merit" should be eliminated, which could save $45 billion to $50 billion in 1983 and 1984.
Among the "loopholes" that Domenici criticized was the provision of the administration's 1981 tax-cut bill that allows some corporations to sell some federal tax exemptions to profitable companies looking for tax breaks.
That provision has turned out to benefit corporate giants such as Ford Motor Co. and Occidental Petroleum Corp., but Regan said the concept was valid and "we are rather proud of it."
"You've seen a few spectacular ones," he said, "but what's wrong with helping an ailing company rather than put it out of business?" He said the tax credits could be bartered to help some companies improve their cash flow, but "whether they are used by the company that earned them as tax credits or another company has no impact on the budget as long as they are used."
Regan, insisting that declining interest rates, a spurt in personal savings and other indicators show that economic recovery is in sight, is not alone in his optimistic predictions.
In an interview to be published today by U.S. News & World Report, Frederick Schultz, vice chairman of the Federal Reserve Board, says the recession could end by spring.
"A prime factor in this recession has been very high interest rates," Schultz says. "They are coming down rapidly. Next year, the stimulating effect of rising defense expenditures and tax cuts comes into effect. So I believe the recession will end in the second quarter and certainly no later than the third quarter of 1982."