President Carter announced his new voluntary wage-price guidelines program last night and, in a surprise, proposed offering to workers who comply a tax rebate as "insurance" if inflation exceeds 7 percent next year.
The rebate proposal, kept secret until yesterday, was added to help persuade large unions to cooperate with the president's new program. Some labor leaders already have complained that the guidelines are unfair.
Carter told a Cabinet meeting yesterday that, "We've already begun to see special-interest opposition arising that is quite formidable. We've got to be prepared to meet it forcefully and carefully."
Meanwhile, Republican National Committee Chairman Bill Brock denounced Carter's program as "blatantly political" and "too little, too late." Brock issued a statement several hours before the president went on TV.
Administration sources said the president is expected to name Alfred E. Kahn, 61, chairman of th Civil Aeronautics Board, to direct the new program. Kahn, an economist, was present at yesterday's Cabinet session.
Officials said the anti-inflation plan is designed to slow inflation to between 6 and 6 1/2 percent next year, compared with a 7 1/2-to-8 percent pace now, and try to avert a recession before the 1980 elections.
However, many experts doubt that a purely voluntary program such as Carter announced last night will be able to restrain inflation. There has been some speculation that the administration will eventually have to adopt wage-price controls.
Carter announced the plan in a nationwide television address in which he also pledged to rein in federal spending, impose a partial freeze on federal hiring and cut the costs of federal regulation.
Admonishing all Americans to cooperate with the new guidelines program or risk bringing on a recession, Carter warned, "This is a standard for everyone to follow - everyone.
"As far as I am concerned, every business, every union, every professional group, every individual in this country has no excuse not to adhere to these standards. If we meet these standards, the real buying power of your paycheck will rise."
At the same time, he asked Americans to be patient with the program. "These steps can work," he said, "but that will take time . . . If there is one thing I am asking of every American tonight, it is to give this program a chance to work."
The tax rebate plan, which Carter said he will recommend to Congress in January, would provide a refund to workers who observe the 7 percent pay guideline if it turns out that inflation exceeds 7 percent next year.
Each eligible worker would be guaranteed a rebate equal to the portion of his wages eroded by inflation. If inflation were, say, 9 percent, each complying worker would get a rebate equal to 2 percent of his basic wages.
To qualify for the rebate, a person would have to be part of a group of workers who agree to hold their wage demands to 7 percent or less. Employers would certify to the Inland Revenue Service that their workers are qualified. Administration experts said they could not estimate what this recommendation could end up costing.
The partial freeze on government hiring would limit all federal agencies to replacing half the number of the workers who leave over the next year - a savings officials estimate would reach roughly 7,000 jobs a month.
The guidelines program would ask companies and workers to hold their wage and price increases voluntarily within certain general limits, and would threaten use of government sanctions against those who refuse.
Although officials conceded that they plan to monitor only the 400 largest corporations and a handful of major unions, Carter said he was asking all Americans to follow the new standards.
Officials raised fears that, if the nation does not mobilize now to help slow inflation the Federal Reserve Board will try to do the job by raising interest rates, possibly plunging the economy into a recession.
As reported previously, the guidelines include two major standards.
WAGES - A limit of 7 percent for wages and fringe benefits combined, to be calculated on a company-by-company basis, with separate averages for unionized workers, nonunion rank-and-file and executives.
Exempt from the standard would be those under existing contracts, low-wage workers earning less than $4 an hour. Unions agreeing to cost-saving reductions in work rules would be given credit in the calculations.
PRICES - Companies would be expected to hold their price increases half a percentage point below their average increase during 1976-77, or, in the case of smaller firms, keep their profit margins from increasing.
Companies whose workers held their wages increases more than half a percentage point below the 1976-77 average would be expected to hold down prices accordingly.
Those suffering unusual cost increases could raise prices to cover them, but would have to keep their profit margins stable. However, in no case could a firm's average price increase exceed 9 1/2 percent.
Enforcement - The guidelines would be enforced primarily by denying federal contracts to firms or unions which refuse to comply with the numerical standards.
Each firm biding on a federal contract involving $5 million or more would have to certify in advance that it is complying with the price guidelines, or it would be excluded from the bidding.
However, officials also plan to use a variety of other sanctions, from revising federal regulations and urging rate-setting agencies to clamp down on violators, to increasing imports on some items.
Carter also plans to deny Export-Import Bank credits to corporations refusing to comply with the guidelines.
Monitoring of large unions and companies will be done by the existing Council on Wage and Price Stability, which has been expanded to 130 persons and has been given authority to use its subpoena powers to obtain wage-price data.
The council also will seek to spotlight companies and unions that violate the guidelines by naming them in public hearing and special reports. Aides said that in a few instances Carter may personally denounce big increases publicly.
Regulatory costs - The administration will seek to hold down the mounting costs of federal regulations by establishing a new regulatory council to review proposed new rulings to make sure they are not unnecessarily costly.
Spending crackdown - Carter also reiterated previously disclosed plans to hold the federal budget deficit for fiscal 1980, the spending plan due out in January, to $30 billion or less, down from an estimated $40 billion this year.
Special problem areas - In addition to the broad wage-price guidelines, Carter said he would take special steps to deal with high-inflation areas of the economy, including fodd, housing and medical care.
On food prices, the wage-price council and the Agriculture Department will monitor prices of major crops and try to make sure any decreases are reflected in supermarket prices. Big grocery chains will be asked to keep profit margins stable.
Carter also set a goal of slowing medical care costs by at least 2 percentage-point standard for the rest of the economy. And he renewed his call for enactment of cost-containment bills, which failed in the last Congress.
However, his plans on housing costs were left fuzzy.
The wage guidelines took effect last night, while the price standards will measure increases from the most recent full quarter of a corporation's fiscal year. The tax rebate would apply to the 1979 tax year.
The tax-rebate plan is the only part of Carter's program that would require congressional approval. The remainder is being put into effect by presidential order, and needs no specific legislation.
However, officials said Carter may propose other tax measure in January, including a possible rollback in Social Security tax increases now scheduled for 1980 and beyond. A task force now is studying such a step.
Immediate congressional reaction to Carter's tax rebate proposal was guarded and non-committal. Rep. Al Ullman (D-Ore.), chairman of the House Ways and Means Committee, said his panel would need "a lot more information" before acting.
In his speech last night, Carter rejected what he called "two simplistic and familiar" proposals for dealing with inflation - imposition of mandatory wage and price controls and a "deliberate" recession.
However, he warned that the nation must succeed in slowing wage and price increase voluntarily, or risk bringing on a serious economic slowdown.
He promised that "fighting inflation will be a central preoccupation of mine during the months ahead," and said he wanted to "arouse our nation to join me in this effort."
The overall anti-inflation package was far more elaborate and complex than officials originally had hinted, reminding some observers of the wage-price controls imposed by the Nixon administration in 1971.
However, administration economic officials insisted to reporters at a briefing that the White House had no intention of imposing controls. The administration currently has no authority for such a step.
Both the 7 percent wage standard and the half percentage point price deceleration guideline were regarded as relatively restrictive; if unions and corporations cooperate in following them.
The wage guidelines would cover fringe benefits as well as basic pay increases - a more demanding standard than the Nixon administration's pay ceiling, which covered only wages.
And, while the price guideline requires only a half percentage point "deceleration" from 1976-77 increases, it could mean a 1 to 2 percentage point cutback for some firms, because prices have risen this year from 1976-77 levels.
If Carter meets his overall goal of holding price increases to between 6 and 6 1/2 percent next year, it would mark a major improvement from the 7 1/2-to-8 percent pace that is expected to prevail this year.
In the first eight months of 1978, consumer prices have risen at 9 1/2-percent rate. Over the past 10 years, prices in the United States have increased by an average of 6 1/2 percent a year.