Veto of Bill Authorizing Automatic Price Increases in Star Route Postal Contracts.

To the House of Representatives:

I am returning H.R. 2035 without my approval.

I am returning it because the principle it embodies is inflationary.

I am returning it because it would set a bad example, not only in Government, but throughout our economy.

This bill provides that whenever the consumer price index rises by at least one percent a year, the costs of more than 9,600 Star Route postal contracts would be automatically and arbitrarily increased.

Such a blanket adjustment of Federal contracts, based on the consumer price index-or any price index--is dangerous. It substitutes an arbitrary rule for the need to judge each case on its merits.

Often, an increase in the consumer price index does not mean that the contractor's actual operating costs have gone up. Yet, under this bill, the contractor would be automatically entitled to price increases.

This is not sound fiscal policy. It is not fair to those who do business with the Government, and it is not fair to the taxpayers.

The principle of this measure, if approved, would not stop with the Star Route postal contracts. It would spread to other Post Office contracts--and ultimately to contracts throughout the Federal Government.

This would open the door for similar actions throughout the private sector of our economy. The resulting automatic, and often unjustified, wage increases would fuel the fires of inflation.

Thus, we would be caught in an endless chain--a chain that would imprison the wage-earner behind the bars of inflation. I do not intend to let that happen.

We are now in the sixth year of sustained prosperity. This prosperity was not achieved by accident. It was achieved by responsibility and restraint on the part of American business, American labor, and your Government. We imperil that prosperity if Government, itself, breaks the line.

I recognize that adjustments in contracts may be necessary from time to time. And it is the policy of this Government to make these adjustments whenever they are justified.

I also share the concern of the Congress that we should do everything possible to reduce the burden of paperwork which is now required of our Star Route contractors. But we must not attempt to achieve that goal by setting into motion arbitrary contract increases which can only contribute to a wageprice spiral with its disastrous impact on our economy.

Accordingly, I have withheld my approval from H.R. 2035. But I have directed the Postmaster General to take immediate steps to eliminate unneeded and unnecessary paperwork of these small contractors.

I believe that the purpose intended by the Congress in the enactment of this measure can be fully served in that manner without jeopardizing our sustained prosperity.

LYNDON B. JOHNSON

The White House

July 19, 1966