Jimmy's Carrot-and-Stick Plan

Right up to the last moment, the President, Energy Adviser James Schlesinger and other officials continued to shuffle the program's blend of penalties and incentives. The major elements, as they stood at week's end:

GASOLINE TAX. The current 4-c--per-gal. federal tax on gasoline might eventually be increased in stages to as much as 54-c-, with the aim of encouraging motorists to use less gas and switch from gas guzzlers to smaller cars with better mileage. The tax-setting machinery would be complicated. First the Government would gauge actual nationwide gas consumption over a set period. This period could run until next Sept. 30, or it could be postponed until calendar year 1978 to give drivers more time to adjust their habits and possibly cut fuel consumption. At the end of the trial, statisticians would add up the amount of fuel actually consumed during the "base" period. Thereafter, the gas tax would be automatically increased by 50 at the end of any year in which total consumption rose more than 1% above the base period.

Another set of calculations would take effect in 1981, when many forecasters expect gasoline consumption, which now runs at roughly 294 million gallons a day, to start declining. Then the tax would be raised another nickel or maybe even a dime for every year in which gas usage failed to drop at least 2% from the base period. The tax would reach its maximum in 1985 and not increase after that. Says White House Aide Stuart Eizenstat: "We don't want to make the level of consumption so unrealistically unachievable that the tax automatically will go into effect each year. But at the same time, we want to have a policy that actively encourages conservation by the public."

BIG-CAR TAX. The aim here is not to send the monster autos the way of the dinosaurs but to make them a more expensive privilege, using a system of tax levies and rebates based on mileage standards that have already been set by the Federal Government. Autos will be required to yield 18 m.p.g. by next year, 20 m.p.g. by 1980 and 27.5 m.p.g. by 1985. Not every individual car must meet these standards; they apply to the average of the models of each manufacturer.

To lessen its inflationary impact, the auto tax would start low and climb high. Initially it would be around $400 for cars that get ten miles or less to the gallon; by 1985 the tax could grow to as much as $2,500. By contrast, the rebate would start out in the $300 range for the most economical cars (those that get 39 miles or more to the gallon) and rise to a maximum of $500 by 1985. The distribution of such a variety of rebates would doubtless be a burdensome bureaucratic chore. The purpose of the plan is to give U.S. manufacturers time to shift to the smaller models that have long been the province of European and Japanese manufacturers. But foreign-made autos will get no breaks under the Carter program. They will qualify for rebates only if their U.S. sales do not rise.

OIL PRICES. Starting immediately new taxes would be placed on domestic crude oil. They would be designed to lift the average price of old oil, now roughly $5 per bbl., to more than $11 per bbl. Later on, presumably in mid-1979, further taxes would be levied to raise the average price of domestic crude to the world price level, which now stands at about $14.50 per bbl. In order to encourage exploration, the price of newly discovered oil, now held by law at $ 11.28 per bbl., would be permitted to rise, starting in 1979. Such moves would add 5-c- or 6-c- to gasoline prices at the pump and another 1% to the cost-price index.

By raising price ceilings and taxes, the Government will be generating as much as $18 billion a year in new revenues. These revenues will be returned to the economy in the form of tax rebates --most likely for poorer citizens. Income tax rebates might be given largely to lower-income people, or Social Security taxes might be reduced, or the Government might channel funds to states that agree to cut their sales tax rates. The plan will almost certainly include rebates to homeowners who heat with oil, since they would be the principal victims of the oil-tax hikes.

NATURAL GAS PRICES. To stimulate production--and discourage consumption--federal price ceilings would be lifted on newly discovered gas, from $1.44 per thousand cubic feet to $1.75. But the Government would eliminate the current free market in gas that is produced and sold within a single state: intrastate gas, which is now selling in Texas and Louisiana for $2 or more, would be brought under the new federal price ceiling of $1.75. The Administration hopes that a uniform price will bring about a more balanced distribution of natural gas and avoid the critical shortages that occurred in parts of the country last winter. Gas producers, however, complain that the new price ceiling would still be too low to expand supply significantly.

The program may also call for a tax on natural gas that would further encourage conservation. But the levy would probably not be imposed until 1979 in order to give businesses the opportunity to convert to coal. The tax would not be levied on agricultural businesses, which must use natural gas in large quantities in the drying of produce or in other essential processes.

COAL. The Carter plan focuses heavily on replacing dependence on scarce oil and gas with reliance on more plentiful coal. New factories and utility plants would be barred from burning oil or gas, and the ban would be extended to all utilities by the late 1980s. Businesses would get federal tax help in making the conversion to coal; utilities would be taxed if they delayed making the switch. Despite the emphasis on coal, pollution standards would not be relaxed. Companies would still have to use the most modern antipollution equipment, including the costly "scrubbers" that reduce smokestack emissions.

OTHER ENERGY SOURCES. Both businesses and homeowners would be given tax credits for investing in solar-energy equipment. More funds would be provided for research on coal liquefaction and oil shale as well as solar energy. While maintaining its opposition to development of plutonium as a nuclear-reactor fuel--a gesture aimed at quieting opposition to nuclear power--the Administration would speed up the processing of applications for licenses for conventional, uranium-fueled nuclear generating plants from the present three-to-six years to six months. Says Eizenstat: "We are just trying to ensure that nuclear power plants that should go forward do go forward in a reasonable amount of time. We are not changing our opposition to the [plutonium] breeder reactor."

INSULATION. Tax credits would be given to homeowners who weatherproof their houses with various kinds of insulation, storm windows, and automatic thermostats. Utility companies would be encouraged--or perhaps required--to offer their customers programs for conserving oil or gas in the home. Banking institutions might also be required to lend money for energy-saving projects, and the loans would be underwritten by federal agencies.

APPLIANCES. The Government would set energy-efficiency standards for such home appliances as ranges, water heaters, refrigerators, freezers and air conditioners. Federal taxes might be levied on appliances that are "energy inefficient," and rebates might be given on appliances that are the most economical.

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