White House Fact Sheet on Details of the Anti-Inflation Program

THE PRESIDENT'S ANTI-INFLATION PROGRAM FEDERAL GOVERNMENT ACTIONS

The Federal Government alone cannot solve the inflation problem, but it must take the lead. The administration will do everything in its power to ensure that its actions are consistent with the objectives of the anti-inflation program.

Budgetary Policy

Substantial progress has been made in reducing the rate of unemployment. But further progress in reducing unemployment will depend on our success in reducing the rate of inflation. The budget that will be submitted in January will give top priority to moderating inflation. To achieve that goal the President will:

—Put a tight rein on the growth of Federal spending. He has pledged to cut the share of Gross National Product accounted for by Federal spending from 23 percent in FY 1976 to about 21 percent in FY 1980, 1 year ahead of his previously announced schedule.

—Reduce the Federal deficit. In fiscal year 1976, the Federal deficit was $66 billion. In just 3 years, by 1979, the deficit will be cut to below $40 billion. In the 1980 budget, the deficit will be reduced still further—to less than one-half the 1976 deficit.

In order to contribute to these goals, the President has imposed severe limits on the hiring of Federal employees. Effective immediately, for an indefinite period, Federal agencies will be permitted to fill only one out of two vacancies as they occur.

Regulatory Policy

Programs to protect the environment and the health and safety of workers and consumers are vital. But the achievement of these critical objectives should not place unnecessary burdens on the economy. Regulatory agencies are now required to analyze major new regulations to identify and compare benefits and costs. In addition, the President has:

—Directed the formation of a Regulatory Council. This Council will include all regulatory departments and agencies. The Council will have the important task of coordinating duplicative and overlapping regulations, in concert with the Office of Management and Budget's efforts to enforce the regulatory-process Executive Order 12044.

—Directed the new Regulatory Council to develop a unified calendar of major 'regulations. The calendar will provide, for the first time, a comprehensive list of major regulations to be proposed by the various agencies of the Federal Government. This calendar will facilitate a comprehensive and consistent approach to the evaluation of costs and benefits of proposed regulations. The Council will help to ensure that regulatory objectives are achieved at the lowest possible cost.

—Pledged to use his authority to ensure that regulations are issued only when necessary and that they achieve their goals at the lowest possible cost.

—Directed each executive branch regulatory agency to include additional regulations that have a major economic impact in the "sunset" reviews that are required by E.O. 12044.

PRIVATE SECTOR ACTIONS

Success of this anti-inflation effort will depend upon the cooperation of the private sector. To this end, the President has set forth explicit numerical standards of behavior for pay and prices in the year ahead.

Pay Standard

Annual increases in wages and private fringe benefits should not exceed 7 percent.

—Workers earning less than $4 per hour will be exempt as well as wage contracts already signed.

—In new collective bargaining situations, a contract in which wage and fringe benefit increases average no more than 7 percent annually over the life of the contract will be consistent with the standard. In evaluating a contract for consistency with the standard, cost-of-living clauses will be evaluated using a 6-percent-per-year rate of price inflation over the life of the contract.

—No more than an 8-percent pay increase should be included in the first year of a multiyear contract.

—Increases above the standard will be acceptable to the extent that they reflect changes in work rules and practices that show demonstrable productivity improvements.

—The standard does not apply to individual workers. The standard applies to average pay increases for groups of workers. Firms will be expected to divide their work force into three categories:

(a) management employees, (b) groups of employees covered by separate collectively bargained contracts, and (c) all other employees.

Price Standard

Individual firms are expected to limit their price increases over the next year to one-hall of one percentage point below their average annual rate of price increase during 1976-77.

—If wage-rate increases for a firm decelerate by more than one-half percentage point from the 1976-77 base period, greater deceleration in prices will be required in order to ensure that savings are reflected in prices.

—The standard does not apply to specific products, but to a firm's overall average price.

—Firms unable to meet the one-half percent deceleration standard due to unavoidable cost increases must demonstrate, as an alternative, that their beforetax profit margins are no higher than in the best 2 of the last 3 years.

OBJECTIVES FOR THE PROGRAM

The pay and price standards have been developed to be consistent with one another.

—The deceleration standard for prices can be related to the wage standard by adding 0.5 percentage point to the 7-percent wage standard to reflect scheduled increases in legislatively mandated payroll costs and deducting 13/4 percentage points for productivity growth. The result is a 53/4-percent economy-wide rate of increase in unit labor costs. If firms reduce their average price increases by the price standard—that is, if they reduce their average price increase by one-half percentage point below the average rate of price increase in 1976-77—the result would be a 53/4-percent increase in prices of nonfood commodities and services. The pay and price standards are thus consistent with one another.

—Because of the allowances necessary to deal with a complex economy—such as the treatment of wage contracts already signed and the existence of some uncontrollable cost increases—widespread observance of the standards would lead to an overall rate of inflation of 6 to 6¼ percent in the year ahead, well below the rate of inflation in 1978 to date.

REAL WAGE INSURANCE

The President will recommend to the Congress a program of "real wage insurance." Under this program, workers who are members of groups that meet the pay standard would receive a tax rebate if the rate of inflation in the year ahead exceeds 7 percent. The program will be developed for submission to the Congress in January. Although final decisions remain to be made, the broad outlines of the program are as follows:

—The amount of the rebate would be equal to the difference between the actual rate of inflation and 7 percent, multiplied by an individual worker's pay, up to some reasonable limit.

—Workers who are members of groups that meet the 7-percent pay limitation would be eligible for the real wage insurance.

—The rebate would be paid only if the rate of inflation in the year ahead actually exceeds 7 percent.

INCENTIVES FOR COMPLIANCE

The administration will interpret wage and price increases above the standards as indications of inflationary conditions, such as shortages, excessive market power, or shelter from competition. Thus, increases in excess of the standards will trigger actions by the Government such as:

—Reexamining various restrictions on imports and, where possible and appropriate, relaxing them.

—Asking regulatory agencies to review rate levels and other rules in light of the standards for wages and prices.

—Seeking modification in those regulations that set minimum levels for prices or wages in specific situations.

GOVERNMENT PURCHASES

The Federal Government itself is a major purchaser of goods and services. By channeling its procurement to those firms whose price and wage decisions meet the standards, it can realize long-term savings in its procurement budget and simultaneously take the lead in fighting inflation.

—To the extent consistent with legal requirements and ensuring national security, the President will direct Government agencies to limit purchases to those firms observing the pay and price standards.

—After January 1, the Government will require firms awarded contracts in excess of $5 million to certify that they are observing the standards.

—This program will be administered by the Office of Federal Procurement Policy (OFPP) of the OMB.

—Specific procedures to carry out this policy will be announced soon by OFPP and by the Council on Wage and Price Stability (CWPS).

MONITORING

The Council on Wage and Price Stability will be expanded by about 100 persons to monitor the adherence to the wage and price standards by firms and employee groups.

—CWPS has the authority to obtain, where necessary, required information on prices, profits, and wage rates. It will publicly identify areas of the economy and firms that are not complying with the standards.

—In addition CWPS will monitor on a regular basis wage and price developments of individual firms whose annual sales exceed $500 million. It will also monitor individually all major collective bargaining settlements.