Mr. MACY. This is a budget consideration, and a consideration in terms of the general economic impact of an increase that would total $1 billion in order to bring about the proposed changes in this plan. Mr. CORBETT. That, then, leads to the second question as regards the postal employees.

We have been told repeatedly we cannot go ahead and raise the salary of postal employees unless we have postal rate increases. The postal people do not represent a majority of the people affected by this. Where are we going to get the money for the other groups? Are we going to raise taxes?

Mr. MACY. My view, Mr. Corbett, is that the issue of postal rates. and the issue of postal and other Federal salaries are separate.

Mr. CORBETT. Î could not agree with the gentleman miore, but they are related in everybody's mind.

Mr. MACY. I would hope we could divorce them so we could consider the two separately.

In answer to your question, the financing of the increases other than those in the postal service would come from the general receipts of the Government and would be a part of the total President's budget in each of the years where these increases are to become effective.

Mr. CORBETT. Presently, we have been meeting this need for more qualified individuals with increased numbers of supergrades. People have come in here and asked Mr. Gross and this committee for more supergrades.

Is that true, Mr. Gross?

Mr. GROSS. It certainly is.

Mr. CORBETT. We have been adding these all along.

In the event a large part of this program could not be adopted now, would the gentleman not possibly believe by the utilization of supergrades, and by the hiring of specific people to do specific jobs-we have had some examples of the Government contracting out workmaybe that is a possible alternative.

I noticed in the paper the other day where one of our agencies with a big personnel staff had hired to public relations outfits at over $100,000 each to employ people, recruit them. I do not know what their problem is.

Mr. MACY. I am unaware of those particular instances. In response to your inquiry, I would say that the increase in the number of supergrades has been a means of providing additional top level jobs, but I do not feel the increase in those jobs at the present rates would fulfill the salary needs of the Federal Government.

What we are proposing here is a scaling up of positions at the intermediate and upper level in order to have salaries that are reasonably comparable to those that exist outside.

Mr. CORBETT. You are making it abundantly clear. That is a right motive.

I believe, Mr. Chairman, the gentleman has answered the questions as put to him.

Mr. MORRISON. Mr. Henderson, do you have any questions?
Mr. HENDERSON. Mr. Macy, in your statement you say:

Although the average increase for the postal service as a whole is lower than for the Classification Act, nevertheless, at the most heavily populated (377,000)

postal level PFS-4, the average increase (7.5 percent) would be greater than at the corresponding Classification Act grade GS-5 (6.6 percent). These increases would be spread over the 3-year period.

Would it be your opinion that under the bill, if these two percentage increases were granted as proposed in the bill, would the employees affected be what we call at that time "caught up" with their lag in pay increases and cost of living?

Mr. MACY. Mr. Henderson, it is our judgment when these increases. are finally effective in 1965-the third phase-that the Federal rates will be in line with comparable rates in private industry as of 1961. As I indicated in response to Judge Davis' question, during the period between the first effective date in 1963 and the ultimate one 2 years later, there would be submitted by the executive branch an analysis of what had happened in private enterprise salaries generally during that period of time, and a recommendation would be made to the Congress.

The assumption in the bill is that there would be no change in the level during this period of time, so actually it is comparable in 1965 against rates determined in 1961. There would have to be consideration in the interim years after the schedules were set for 1964 and 1965 as to what supplementary adjustments, if any, would be necessary in order to preserve comparability.

Mr. HENDERSON. Could we conclude if we did not have the budg etary consideration at this time, that the proposal of 7.5 percent for postal workers in this grade PFS-4 would bring them up to date in your opinion as of this time?

Mr. MACY. Yes, sir.

Mr. HENDERSON. That is all the questions I have, Mr. Chairman. Mr. MORRISON. Mr. Gross, do you have some questions?

Mr. GROSS. Mr. Macy, I was interested in your concluding statement where you quote the President.

I note you did not use those famous first words of "Ask not what your Government can do for you, but what you can do for your Government."

Those were omitted. I do not hear that repeated now at all any place at any time. Are those words forgotten?

Mr. MACY. No, indeed.

This is a guiding principle we are endeavoring to follow in our management approach to Federal programs. We feel in asking people to work for the Government that we should compensate them on an equitable basis, and it is essential the Federal Government be staffed with high quality people if the programs that have been enacted by the Congress are to be effectively executed.

Mr. Gross. You use a lot of words in your statement to say this is not a pay increase, but it is a pay increase, is it not?

Mr. MACY. I say it is not a general or an across-the-board pay in

crease.

Mr. GROSS. It does not miss much of it, does it?

Mr. MACY. A general increase in my judgment would be an increase that would be applied either as a flat rate, or a percentage all the way across the board, and this proposal is designed to carry out the principles of reform which does produce the result, as I indicated in my statement, for some increases for all employees, but the overriding

purpose is to provide this new set of principles for application in setting salaries for the 1.6 million positions under these statutory pay systems.

Mr. GROSS. I like the label. It is sugar coated. I like the label "pay reform bill." It is an increase, and it is going to cost $1 billion. Is this at the end of the 3-year period?

Mr. MACY. As proposed here, Mr. Gross, the $1 billion increase in salaries would take place in 1965. The first fiscal year that would reflect that full amount would be fiscal year 1966. The President felt this was a large increase and therefore it should be phased over a period of time.

Mr. GROSS. I would like to reask a question that my colleague from Pennsylvania asked.

Where do you propose to get the money?

Mr. MACY. The cost of this program would come from the receipts. available to the Federal Government for operations. This would be met as a part of the President's budget.

Mr. GROSS. You are well aware of the fact we are borrowing money every day, Mr. Macy?

Mr. MACY. I am, indeed.

Mr. GROSS. I had occasion to go into two or three banks during the Easter recess out in my district, and every bank I went into had been requested to make a further line of credit available to the Government. All had been asked to make a further line of credit available to the Government, so the borrowing goes on and on and on. There just is no money in the Treasury. We are borrowing money. We have about a $7 billion deficit this year, and another one projected for next year. But you do not advocate raising taxes, do you?

Mr. MACY. No. A tax increase is not a part of this program. Mr. GROSS. But you do support a postal rate increase bill to pay the share of the increase, if there is an increase, and I trust there will be in some categories at least, in the postal service.

Mr. MACY. I support an increase in postal rates as a desirable public policy at this time.

Mr. GROSS. Will it not be a desirable public policy to increase taxes to pay for this salary increase if it is enacted as you suggest here, and does reach $1 billion a year?

Mr. MACY. My view would be that judgments with respect to taxes and other fiscal matters would have to be reached, not just in terms of this particular item of expenditure, but in terms of the total pattern of expenditures for the Federal Government.

This is a $1 billion increase. It will raise the compensation of civilian employees to approximately $14 billion, but this is still a relatively small percentage of the total Federal budget.

Mr. GROSS. You want to stretch this out over a 3-year period. I take it this is because of the budgetary impact. Is that about correct? Mr. MACY. That is correct.

Mr. GROSS. Do you think this is necessary in part at least because of further inflation?

Mr. MACY. I think the economic impact, as I indicated, is related to the fact that a total increase at this time would not be in keeping with the desired economic pattern at this time.

Mr. GROSS. Let me ask you this pointed question-do you consider this to be an inflationary measure?

Mr. MACY. I do not as it is presently proposed.

Mr. GROSS. I am afraid I would have to argue with you about that. We will go on.

How can the administration recommend a pay increase of that magnitude when it is warning labor and bludgeoning private enterprise to hold the line indefinitely on wage and price increases, or does this mean the administration will agree to wage and price increases late this fall or as of January next year?

Do you have any idea?

Mr. MACY. The view is this program is advanced within the scope of the economic program of the administration. This is not a break in the President's request for restraint. This is an increase that is designed for the purpose of catching up on Federal salaries to salaries that exist for comparable work outside of the Government. It is phased over a 3-year period in order to reduce the degree of impact in any one year. But this is not breaking any economic or wage barrier. It is an effort to provide in the Federal Government a competitive rate that is in line with what exists outside.

Mr. GROSS. How much has been set aside in the Federal budget for fiscal year 1963, which begins July 1, 1962, for pay increases for Federal employees?

Mr. MACY. $225 million which would cover the first 6 months of increases effective January 1, 1963.

Mr. GROSS. $225 million?

Mr. MACY. Yes.

Mr. GROSS. Is it the purpose of this legislation that you recommend to pay postal and other Federal employees what they deserve in connection with their duties and responsibilities, or is it designed to make the Government service more attractive for recruiting purposes?

Mr. MACY. Both objectives are intended in the proposal.

Mr. GROSS. How many Federal employees leave the Government service each year to accept higher paying positions elsewhere? Do you have an estimate?

Are they mostly in the lower or higher grades?

Mr. MACY. I do not have a specific answer as to the number that leave for higher rates in private industry. I have some selective information concerning various individual installations and skills.

The point I would make is, the key people with critical skills are the ones that are leaving for higher pay outside the Government. The overall turnover for the Government is about 15 percent a year, but this includes separations for all causes, not just those that are voluntary resignations for the purpose of accepting higher salaries.

Mr. GROSS. During your testimony before the Mandpower Subcommittee, you stated the purpose of the two new grades, GS-19 and GS-20, under the Classification Act was to permit increases in compensation for certain bureau directors and you stated, "Ten are to be of a continuing career nature.'

For example, you stipulated the Director of the FBI, and the head of the Internal Revenue Service. I think it is well known that no President of the United States would have the irresponsible judgment to fire J. Edgar Hoover, so I would consider that an exception, and

with respect to the head of the Internal Revenue Service, this position has been subject to the spoils system from time immemorial.

Do you have any other examples of career officials who would be promoted to $27,290 a year, or $28,000 a year in these two new grades, GS-19 and GS-20, and how many will there be, or are you asking Congress for a blank check?

Mr. MACY. No. As I indicated in my statement, there would be a limited number in grade 20 of approximately 10 to 12 at the outside, and 10 to 15 in grade 19.

I would be happy to provide additional job titles. The thinking would be that, in addition to the two jobs you refer to, the Commissioner of Social Security, grade 20, the Director of Agricultural Credit Service, the Administrator of Agricultural Stabilization and Conservation would be in grade 20.

In the grade 19 bracket would be the Chief Forester, the Commissioner of Patents, the Federal Highway Administrator, the Director of the Census Bureau, and the Commissioner of Education. These are heads of major bureaus within departments and agencies. The purpose here is to try to draw a line between those jobs that are heads of departments and agencies, and the positions that are at the bureau level.

Mr. GROSS. How many more are there in the Government such as Mr. Caplan who are completely subject to the spoils system and are moved when the administration changes.

Mr. MACY. I would describe the Commissioner of Internal Revenue as a presidential appointee position. There are a number of presidential appointee positions in the list that I have given to you. Also, a number of positions that were career people who continue from one administration to another.

Mr. GROSS. So these who would be benefited in this category are not necessarily career officials, are they?

Mr. MACY. The list includes both career officials and presidential appointees.

Mr. GROSS. If they are there for 4 years and gone, they are not necessarily career officials.

Mr. MACY. But there are some who go considerably beyond 4 years. There are men like the Commissioner of Food and Drugs who has filled that position for a good many years under several administrations.

Mr. GROSS. According to my analysis of the pay increases, it looks as though you would provide a $354 total pay increase for clerks and carriers at the entrance level, while granting a $2,000 to $1,500 increase in the salaries of the higher grades, PFC-16, 17, 18, 19, and 20. Do you think this is discriminatory treatment?

How can you support such exorbitant pay increases in these higher levels in view of the conditions of the U.S. Treasury, among other things?

Mr. MACY. In answer to the first part of the question, in order to catch up in applying the principle of comparability, it is necesasry to have a higher percentage increase in the upper end of the scale than at the lower end. This is due to the fact that the increases in pay since. World War II-and there have been seven of them-have for the most part been flat rate increases, or percentage increases, so there has been