Reagan Aim: dramatic action on inflation

Top aides to Ronald Reagan are backing away from urging the President-elect to declare a national economic emergency. But they insist he must and will have a dramatic, comprehensive, and credible program ready to present to Congress and the nation on the heels of his inauguration.

"The world emergency," says Sen. Pete V. Domenici (R) of New Mexico, "is double-edged."

If Congress should stall on Mr. Reagan's program, said Mr. Domenici, incoming chairman of the Senate Budget Committee, or fail to enact parts of Reagan's proposal, the invocation of a national emergency could backfire against the new President.

Nonetheless, Reagan aides insist, the President-elect's economic program will be designed to convince Americans that the new administration can control inflation and lift the economy out of recession, even if the word "emergency" is not used.

The task won't be easy. US prices climbed 1 percent in November -- the third such monthly increase in a row. Sharp boosts came in costs for used cars, gasoline, and food -- although new car prices fell.

Elements of Reagan's anti-inflation program, according to a senior transition official, will include tax cuts, a least $15 billion worth of trims from the current fiscal 1981 budget, and a determination to work with the Federal Reserve Board to achieve "consistent" control of the money supply.

Meanwhile, President Carter's budget aides -- with something less than enthusiasm, one assumes -- are shaping the fiscal 1982 budget which Mr. Carter, by law, must present to Congress next month.

US Rep. David A. Stockman (R) of Michigan, Reagan's nominee as budget director, says he hopes to knock from $30 billion to $50 billion worth of spending growth from that last Carter effort.

It was Mr. Stockman, together with Rep. Jack F. Kemp (R) of New York, who spoke of a national economic emergency in a "manifesto" to the President-elect detailing the state of the economy and the political perils to Reagan of failing to convince Americans of the credibility of his program.

The hardest part of the new President's task, many observers believe, will be to carve enough savings out of the federal budget to offset the prospective Reagan tax cut without hurting millions of Americans disadvantaged by age, poverty, or joblessness.

"It is not a matter of throwing beneficiaries [of government programs] to the winds," said Senator Domenici in a telephone interview, "but of providing more for the truly needy while weeding out those who deserve it less."

Temporarily, he indicated, this might involve setting a cap on federal entitlement programs, except for social security.

Entitlement programs, including medicare and medicaid, food stamps, unemployment compensation, and job training, provide money to groups of Americans entitled, under law, to special help.

Currently many such programs are indexed to inflation, moving up in tandem with the consumer price index (CPI). To put a cap on their growth -- that is, to divorce them from indexation -- would require Congress to change laws.

Reagan economic officials are deeply concerned that the combined effect of inflation and recession might add billions of dollars to government outlays and wipe out whatever savings the Reagan budget-cutters might make.

Every one-tenth of 1 percent rise in unemployment, according to Carter White House officials, costs the US Treasury at least $350 million through the loss of tax revenues and payment of unemployment compensation and related costs.

Officials of the outgoing Carter administration, resentful of any implication that they have bungled the nation's affairs, point to positive aspects of the US economy.

Millions of new jobs have been created over the last four years, they note, and the nation's overall exchange of goods, services, and capital with the rest of the world is expected to show a slight surplus for 1980.

Privately, however, Carter officials agree with incoming Reagan aides that the fight against inflation has failed and that step interest rates may push the United States into recession early next year.