In trying to dampen inflation over the past several years, American Presidents have used a variety of approaches. The ultimate came in 1971, with the Nixon administration's resort to wage-price controls. The weakest was in 1974: President Ford's ill-fated campaign to Whip Inflation Now.
Now, the Carter administration is toying with still another proposal that almost everyone agrees sounds intriguing, and hasn't been tried before: Using the tax code to influence wage and price behavior. The only problem is, officials say it isn't very likely to be adopted.
The interest has come because top administration officials frankly are stumped over how to pare inflation any othe way. Prices now are rising at an uncomfortable 6 to 6.5 per cent pace - only half the double-digit rate of 1973-74, but still high by historical standards.
Carter originally had planned to establish a voluntary wage-price restraint program modeled after the "guideposts" used during the Kennedy era. But even the mention of that drew such vigorous protests from business and labor that the White House backed down.
Although the inflation rate isn't speeding up now, officials not glumly it isn't slowing any, either. Many strategists believe the administration must move now - while the price spiral is taking a breather - or lose the opportunity to bring inflation down further.
The difficulty is, top presidential policy makers frankly have run out of solutions. With even a voluntary wage-price plan now out of the question, and "jawbonding" efforts so far a failure, there isn't much in the arsenal for inflation fighters to use. So the tax plan is a possibility.
The most talked-about version was proffered by Arthur M. Okun, the onetime Johnson administration economic adviser. In a nutshell, it would provide a tax break to reward individual companies and unions which agree to hold down their wage and price increases.
Under the Okun proposal, the government would set overall goals of holding price increases below 6 per cent a year and wage boosts to 4 per cent or less. Companies and workers which pledged to hold their demands below the goals would receive a tax rebate, Others wouldn't.
The proposal uses a two-part formula: For companies, the write-off would be equal to 5 per cent of the corporation's income tax liability on domestic operating profits. For individual workers, it would amount to 1.5 per cent of wages, up to a maximum tax break of $225 a person. Total cost to the Treasury: $15 billion.
What the plan essentially would do is set up a program of voluntary wage-price guidelines, using the tax system - rather than direct government suasion - to "enforce" it, (Okun, a liberalDemocrat, has been a longtime advocate of Kennedy-style guideposts.)
Henry Wallich, a member of the Federal Reserve Board, has a similar plan that would impose a higher corporate tax rate on companies that grant excessive wage boosts. The Wallich version, however, would not affect prices directly.
The Okun measure, in particular, has more than whetted the interest of top Carter administration policy makers. (Officials are less ebullient abou the Wallich plan. If it failed, one key planner said, "it would make the system worse" by effectively doubling the increase in labor costs - and cutting into profit margins.)
Analysts say the Okun plan not only would provide an effective way to influence wage-price behavior, but it also would avoid the controversial label of "guideposts." And it would reduce - albeit artificially - the upward pressure on unit labor costs. From the administrations' view, it's a near perfect way out of a box.
Both the President's Council of Economic Advisers, and the administration's inflation watchdog agency have been studying the proposal. At one point, there even were rumors that the White House was seriously considering it for the President's January economic program.
But the plan has two major drawbacks, which insiders say make it almost certain the proposal won't be adopted:
It would impose a single, uniform standard [WORD ILLEGIBLE] and prices throughout the nation -- a formula that critics say fans to take account of special factors affecting each industry. What may be an outlandish wage increase for one industry may be reasonable for another.
It was this kind of rigidity that hastened the demise of the 1972-73 controls. Both the Pay Board and the Price Commission regularly made "exceptions" to the wage and price guidelines. But the presure ultimately still proved two tight.)
In the view of top administration planners, the Okun proposal is too radical and complicated for Congress. Top officials concede the plan would be opposed vehemently by both business and labor, and would invite major tinkering in the House and the Senate.
As one administration official sums it up "You're torn in this business between things that aren't effective and things that aren't acceptable. Unfortunately, the Okun plan falls in the second category. So it's not likely it'll be proposed."
In one sense, this may be the only chance policy makers have in the next few years to try out the Okun proposal. Outside analysts say the plan is likely to work host during times like the present, when inflation isn't yet on the unswing. When the economy is overheated, it's apt to be less effective.
Still, the Okun plan will be on tap should policy makers want to experiment with it in future years. It's first time anyone has proposed recently using tax system to help fight inflation. And doubtless. It won't be the last.