The adminstration is considering taking steps to tighten its voluntary price guidelines for businesses, officials confirmed yesterday.
The administration may put some limit on the profits a company might earn if it says it cannot follow the president's general price standard that requires firms to hold their price increases a half percentage point below their average in 1976 and 1977.
But officials said that no final decisions have been made yet by the Council on Wage and Price Stability and that any change of this substantive a nature also would have to be approved by the high-level Economic Policy Group.
The Council on Wage and Price Stability has been concerned, however, that companies are choosing to observe a rule the administration put forward as an exception, not an alternative, to its general deceleration standard.
That exception says if a company cannot keep its price increases below the 1976-77 average (say because of cost increases), it must make sure that its profits as a percentage of sales - the so-called profit margin - does not increase.
Officials say they worry that if too many companies choose to control profit margins, rather than prices, the administration will have a harder time reducing the rate of inflation to its goal of 6 to 6.5 percent in 1979.
As a result, officials are discussing ways to change the profit margin exception to make it less attractive to companies.
Officials say the only workable approach they have developed so far is to couple the profit margin test with a limit on the amount of profits a firm could earn if it chose to control its profit margins rather than limit its price increases.
If a company chooses to decelerate its price increases, there would be no limit on either the level of profits it could earn or the profit margin.
But if a company pleads that it cannot decelerate its price increases, the council is thinking of telling that firm it should limit its increase in profits to a certain amount - say around 6 percent.
Such an approach should discourage companies from adopting a profit margin approach merely because it is more convenient than trying to hold down the overall level of price increases, the official said.
Whether or not the administration settles on a profit limit, officials said they have decided to change the wording in the standards to make it clear that companies should always try to reduce the rate of their price increases and move to the profit margin test only if uncontrollable cost increases make it impossible to hold to the deceleration guideline.
"Let's face it," said one official, "We'd be very concerned if a company held its profit margin constant, but both very high price increases and had big increases in profits as well."
One business leader said privately yesterday that council officials have warned the business community that some tightening in the profit margin "exception" could be expected.
But, the businessman said, the council will have to find some way to differentiate between profit increases that come about because a company sells more of its product and profit increase that come about because the company did not reduce the rate of its
The council is also close to making a final decision on easing the way it treats the cost of maintaining existing fringe benefits in calculating whether workers are in compliance with its 7 percent wage standard.
As the Washington Post reported last week, unions are concerned that higher health insurance premiums (for the same level of benefits) and federally mandated pension payments by employers will eat up a big chunk of the 7 percent allowable increases in wage and fringes.
Although White House press secretary Jody Powell said the president did not intend to relax the wage standard, officials such as Labor Secretary Ray Marshall have said that the final wage-price standards likely will put some limits on how much the maintenance of existing benefits should count against the 7 percent standard.
Comments on the proposed standards, which the administration considers operative right now, will be accepted until Dec. 2, and the final standards published soon after that.
Although the wage and price guidelines are voluntary, the government has said it will use its powers, such as procurement, to ensure that firms and workers comply with the standards.