Despite its attempts to develop an anti-inflation program that is simple and fair, the Carter administration has created one that is complex and sometimes hard to understand.
For starters, the program is voluntary. No one has to comply.
But if you are a government contractor, or a beneficiary of some special form of government regulation, the administration thinks it has ways to make you comply.
Big companies and big unions will also feel the heat of federal "monitoring" of their wage and price behavior, and probably the sting of Presidential jawboning if they err.
But the administration has also devised a method to protect workers from high inflation if they keep their wage and benefit increases within the standard - provided Congress goes along.
The program will become more complex as the Council on Wage and Price Stability adds more details. But here, in question-and-answer form, are the highlights of what President Carter wants each worker and employer to do.
Question: What are the general standards?
Answer: In general the President wants to limit all workers to a 7 percent a year increase in wages and fringe benefits. He wants all companies to figure out how much they raised prices in 1976 and 1977, take an average of the two years, and raise prices in the coming year by at least 1/2 percent less than the 1976-77 average.
So, if a company raised prices 5 percent in 1976 and 7 percent in 1977, the average would be 6 percent and President Carter wants that company to hold its price increases to 5.5 percent for the first year of the program.
There are exceptions to both the price and wage standards.
Q: For purposes of measuring compliance, when does the program start?
A: That varies from company to company. For companies whose accounting quarters correspond to calendar quarters, the program started Oct. 1. The general rule is like that the company should start measuring its wage and price increase at the end of the first accounting quarter that terminated Oct. 1.
Barry Bosworth, director of the Council on Wage and Price Stability, said the government would prefer it if all companies start measuring compliance on Oct. 1, but recognizes that the accounting quarters of some companies did not end on Sept. 30.
If a company's accounting quarter ended Sept. 23, for example, that company could begin measuring compliance on either Sept. 24 or Oct. 1.
For ongoing labor contracts these rules do not apply. For union workers the program does not take effect until the next contract is signed.
Q: What does the 7 percent wage and benefit standard mean?
A: In general, wage and benefit increases in the first program year should be no higher than 7 percent. While an individual worker may receive an increase higher than 7 percent, some other worker must receive an increase lower than 7 percent to hold the overall increase to 7 percent.
In any company, the employer must break down his workers into three categories: management, union and nonunion. The average for each of the three groups must be 7 percent or lower if the firm and the workers are to be in compliance. The employer cannot give lower raises to non-union workers to offset higher raises for unions or management employees.
Q: What good does it do a worker to be in compliance if inflation is higher than 7 percent next year. Won't the workers lose money.
A: The administration will ask Congress to develop a special program to protect workers in compliance with the 7 percent standard against runaway inflation.
The program is still a little fuzzy, but what the President wants to do is give a worker whose company certifies him to be in compliance with the 7 percent standard a tax refund if inflation exceeds 7 percent.
Say inflation is 10 percent between Oct. 1, 1978 and Oct. 1, 1979 (the administration hopes it will be between 6 and 6.5 percent). A worker certified in compliance with the wage guideline presumably would receive a tax refund equivalent to the difference between actual inflation, as measured by the consumer price index, and the 7 percent standard. The rebate would be calculated by multiplying the percentage difference by the gross income.In this case, if a worker received $10,000 a year, he would receive 3 percent of $10,000, or a tax break of $300.
The administration wants to put a "reasonable" cap on this "real wage insurance," but has not yet said what it thinks is reasonable.
Q: My union always get cost-of-living protection but I don't know how much the Consumer Price Index will rise next year. How can my union sign a contract that is in compliance with the program? (KEY OFF)(KEYWORD): The government says that for purposes of calculating cost-of-living adjustments. Workers and employees should assume a 6 percent inflation rate. So, if as is common, your contract increases your wage to cover half the increase in the cost of living, it would count as 3 percent of your 7 percent limit on total wage and fringe increases. You could then receive, say, 2 percent increases in both fringe benefits and wages and remain within the 7 percent standard.
If inflation really increased 10 percent, you would receive 5 percent in cost-of-living protection and would still be in compliance.
Q: I only make $3.50-an-hour.
A: Any worker earning less than $4-an-hour is exempt from the program. So are workers covered by contracts signed before Oct. 25, even if those contracts call for wage and fringe benefit increases in excess of 7 percent.
Q: What about a company that wants to be in compliance, but has big cost increases that it cannot avoid. Say because the declining dollar boosts the price of imported raw materials. Or an exempt labor contract boosts wage costs sharply?
A: Companies that face unavoidable cost increases therefore making it impossible for them to hold the general "deceleration" standard may raise prices by more than the standard. In those cases, however, a company must be sure that it does not increase its profit margin.
That means that if a company earned, before taxes, 10 percent on sales, it cannot earn more than 10 percent on its sales in the program year if it is forced to violate the deceleration standard because of unavoidable cost increases.
Q: Does a company have to worry about its profit margins if it holds its price increases to a half percentage point less than the 1976-77 average?
Tr for add seven
Q: A company increased its price 15 percent in 1976 and 1977. Can it raise its prices 14.5 percent and be in compliance?
A: No. The most it can raise its prices under any circumstances is 9.5 percent.
Q: Are dividends covered?
A: No. Only wages and prices.
Q: Will anyone have to fill our government forms?
A: The 400 biggest companies, accounting for about 40 percent of the nation's output, will be closely monitored by a beefed-up Council on Wage and Price Stability. Major union contracts will be watched. And employers will have to certify whether their workers are in compliance with the wage standard.
Companies bidding on government contracts bigger than $5 million will also have to certify that they are in compliance.
Q: What else does the government plan to do to insure compliance?
A: If the government discovers wages and prices rising faster than the standards, it can:
Relax restrictions on imports.
Ask appropriate regulatory agencies to take account of inflation in their rate decisions or other actions, such as deciding whether to allow a new firm to start a business in say, the airline or trucking industries.
See if government laws - such as the Davis-Bacon act which sets minimum wages on construction projects - can be changed.
Hold public hearings.