An article on gasoline regulation yesterday incorrectly reported that the Continental Oil Co. (Conoco) had asked the Energy Department for permission to ration gasoline to its dealers. Conoco has requested permission to reduce gasoline deliveries to some refiners in Rocky Mountain states. CAPTION: (NEW-LINE)Picture, Alfred E. Kahn cautions that, despite the new anti-inflation drive, energy prices must go up. By James K. W. Atherton-The Washington Post
President Carter's chief inflation fighter yesterday disclosed that his agency is investigating the causes of new shortages in unleaded gasoline, and warned that the nation may face a choice between higher prices and rationing at the pump.
Wage-price chief Alfred E. Kahn said his office also is probing the recent boost in home heating fuel prices, particularly in New England. But he cautioned that, despite the new anti-inflation drive, energy prices eventually must go uu.
Kahn's statements came as the administration disclosed preliminary plans for its new "wage insurance" tax rebate, designed to reimburse workers who agree to follow Carter's wage guidelines if inflation should top the 7 percent pay standard.
The tentative proposal, shown privately to members of Congress over the past few days, would allow workers to claim rebates amounting to 1 percent of their first $20,000 in wges for each percentage pointthat inflation exceeds 7 percent. the maximum rebate would be $600.
The plan would cover 30 million workers, at an estimated loss to the treasury of less than $5 billion. Officials say low-wage workers earning less than $4 an hour and workers under existing contracts-both now exempt from the wage guidelines-would not be eligible for the rebate.
Meanwhile, the administration disclosed that it is considering a complex new formula to help close a loophole in its present price standard that now allows companies that incur sharply rising costs to increase their profits more than firms that follow an alternative guideline.
The formula would limit to 6 percent the growth in the ratio between a company's total pretax profits and its overall sales volume. Top administration officials already have consulted with business leaders about the plan.
Officials also are considering modifying the procedures for calculating pay increases under the 7 per cent guide lines to allow workers to exempt a portion of the increased costs of maintaining fringe benefits won in previous contracts.An announcement is expected soon.
Kahn's remarks yesterday came during and after a hearing on inflation conducted by a subcommittee of the congressional Joint Economic Committee. The anti-inflation chief said the main reason for the sharp boost in heating oil prices was the imposition of controls in previous years.
Kahn also confirmed that the administration is "looking at . . . very actively" the possibility of postponing next January's scheduled 2 cent increase in the minimum wage as anti-inflation measure. Economists say the boost would add to labor costs, and ultimately spur prices.
The prospect of a shortage in unleaded gasoline is a major concern for the administration these days. Yesterday, two more companies, Texaco and the Continental Oil Co., formally asked theEnergy Department for permission to ration unleaded gasoline among their service stations.
Shortage is particularly critical because most newer model automobiles, manufactured under federal anti-pollution regulations, are designed to operate on unleaded gasoline. Anlysts fear that a major shortage could result unless price restraints are lifted.
The administration's initial contacts with Congress on its tentative tax-rebate plan indicated that the proposal is likely to run into trouble at least in the House Ways and Means Committee. Interviews with several members of the panel showed most were skeptical about the paln.
Re.Charles A. Vanik (D-Ohio),one of those whom Tresury officials consulted, urged publicly yesterday that the administration abandon its present plan and see instead to ask Congress to penalize those who don't comply with the wage-price guidelines.
The proposal to limit the rebate to 3 percent of the first $20,000 in wages, or a maximium of $600,was intended to place a lid on the plan to prevent a runaway loss to the Treasury in case inflation dramatically exceeds the administration's expectations.
Officials have argued previously that the plan would be self-limiting because inflation most likely would abate if substantial numbers of workers agreed to follow the guidelines and the government would have to pay out less in tax rebates.
However, private economists have pointed out that the plan could put the administration in a bind if inflation were spurred by outside factors, such as a surprise jump in foreign oil prices or a major crop failure here at home . The cap would guard against that prospect.
The proposed new formula for preventing firms from reaping excessive profits from the guidelines would tighten an existing regulation that allows companies merely to keep their profit margins stable if they cannot follow the basic price guideline of limiting price hikes below prior years.
Policymakers have conceded that the profit-margin standard drafted hurriedly when the program was announced would enable some firms with sharply rising costs to reap extraordinary profits and still remain within the guidelines. The formula is designed to close that loophole.
Yesterday's hearings included another assertion by Kahn that the administration has no intention of moving to mandatory wage-price controls if the guideline program fails. Khan asked also that Congress make clear that it, too is opposed to controls, to prevent anticipatory price hikes.
Meanwhile, private economists testifying at the same hearing were pessemistic about the program's prospects for success. Alan Greenspan, economic adviser to former President Ford, said the plan "has already begun to deteriorate" and will continue to do so "until it ultimately breaks down."
The White House saw mixed results yesterday from its efforts to persuade state and local governments to go along with the new anti-inflation program. Officials from 800 communities sent Carter letters pledging their support. But Illinois legislators refused to roll back far pay hikes they had voted for themselves.