The administration is looking again at the possibility of linking tax cuts with anti-inflation policy through a "tax-based incomes policy," or TIP, Carter administration officials said yesterday.
While details are far from complete, a number of key Carter advisers believe that some kind of link between tax cuts and wage restraint ought to be tried next year.
Such a plan would probably not be part of any tax-cut proposal made this year, if the administration is forced into announcing tax plans before the election.
President Carter chief inflation adviser, Alfred Kahn, confirmed yesterday that officials in the president's Council of Economic Advisers and in the Council of Wage and Price Stability are "looking into" a TIP and commented that it had "intellectual attractiveness."
"Perhaps as part of a tailored, restrained, responsible tax cut, it would be possible to make some of the tax reductions contingent on some kind of income restraint," Kahan said.
Treasury Secretary G. William Miller, in a Washingon Post interview Monday, left open the possibility such a proposal would be made for 1981, although he said "I am doubtful that something can be worked out this time around . . . if the President finds it necessary to give his views before Congress goes home."
Meanwhile the Council of Wage and Price Stability, which runs the voluntary guidelines for wages and prices, yesterday published an "issues" paper inviting public comment on whether the standards for wages and prices should be continued in their present form for a third year.
One suggestion the paper makes for expanding the scope of the program is that companies should have to prenotify the Council of some price increases. This proposal is almost certain to run into strong opposition from business.
R. Robert Russell, director of COWPS, and Kahn both emphasized that while COWPS expects to continue to operate, the decision has not yet been made officially. And it is genuinely interested in public comment on whether a third year of the program would be, in the words of yesterday's paper, "a useful component of an anti-inflation program." It is unlikely that the program would be discontinued just before the election, but there are strains involved in simply continuing it for a third year. Kahn commented that the present program would have "diminished vitality" next year.
According to COWPS estimates, the program held down inflation by about 1 percent in its first 18 months, Russell told reports yesterday. He said that many economists estimate that to achieve such a reduction through fiscal and monetary policy alone would mean 1 percent more on the unemployment rate, and a loss in production of $47 billion, 2 percent of the GNP.
Kahn commented that "it is difficult to believe that it would be wise simply to drop" the wage-price standards, and COWPS' Russell said he personally believes that "there ought to be a third-year program of some kind." But he added "the program needs some fortification, it needs some strengthening."
Russell emphasized that COWPS is not discussing pay issues now, as the second-year guidelines have only just been agreed upon and put in place. However he said that the major strain involved in continuing the COWPS program is caused by the pay distortions arising from cost-of-living adjustments, which have given unionized workers much larger wage increases than nonunionized in the last 18 months.
A decision will have to be taken soon on whether to extend the guidelines which run out at the end of September. The administration may decide to roll forward the present guidelines to the end of the year and then reexamine the progam, possibly at the same time as considering proposals for a tax-based imcomes policy.
Such a plan would depend for its success on the enthusiasm of both sides of industry, Kahn said yesterday. The last time a similar idea was put forward, Carter's real wage insurance plan of 1978, Congress opposed it and there was "very little interest on the prt of the business and labor," he commented. The proposal was that employes who agreed to hold down wage demands should be compensated for unexpected rises in inflation through tax cuts.
The COWPS program has been criticized as inflation has gone up from a 9 to 10 percent annual rate when it began to an 18 percent annual rate in the first quarter of the year. But Russell said that without the program the annual rises in wages during the first 18 months of its operation would have been almost 2 percent higher and that companies have been somewhat constrained from raising prices.