Dusting Off the Energy-Tax Idea

With petroleum prices in worldwide retreat, does it make any sense for the U.S. to enact a tax that might nudge the price back up again just for Americans? In a rising chorus, economists and energy experts everywhere have been answering with a deafening yes. By last week there were signs that Washington was beginning to listen. Proposals for levies of various sorts were under active examination in Congress, and top White House officials reported growing support for an energy-tax package within the Administration itself.

The case for a federal energy tax is many-sided and obvious. As demand for petroleum has softened, drilling activity has begun to slow. At the same time, the drooping price of crude has reduced the lure of costly alternative energy projects like coal gasification and shale-oil mining.

Though petroleum imports into the U.S. market have dropped from 6.8 million bbl. to 4.8 million bbl. per day during the past twelve months, the slide may be simply setting the stage for a renewed supply squeeze, and a surge in imports, once the economy starts to grow again. Though an energy tax would help prevent foreign suppliers from regaining their former economic leverage over the U.S., lawmakers are beginning to see an even more compelling reason to enact a levy. Properly drawn, a tax would help close the revenue chasm in future Administration budget projections.

Proposals fall into two main categories: boosting the federal excise tax on retail gasoline sales, now at 4-c- per gal., and enacting an import surcharge on foreign oil. Increasing retail gasoline prices would surely help to hold down consumption of automotive fuel, but since gasoline is an important component in the Consumer Price Index, the tax would also translate directly into more inflation. Worse, the levy would do little to boost production of domestic crude oil and have no effect at all on discouraging foreign imports.

An import surcharge, by contrast, would encourage domestic production by using imported oil as a kind of lever to set a higher price for all petroleum in the U.S. market. Moreover, foreign suppliers would get no benefit from the higher prices since the resulting revenues would flow to the U.S. Treasury.

First to broach the surcharge idea was David Stockman, Director of the Office of Management and Budget, who last December proposed a $2-per-bbl. import surcharge. Though the President rejected the idea, such a tax would add about 5-c- per gal. to the retail price of gasoline, which has fallen by as much as 200 in some places anyway.

Now, not only is Stockman's import-surcharge idea being dusted off, but Administration officials are beginning to think seriously of a substantially larger surcharge of anywhere from $5 to $10 per bbl. Such a levy would raise from $18 billon to $36 billion annually, offsetting nearly 38% of the Administration's projected $96.4 billion budget deficit for next year. By cutting taxes for hard-pressed U.S. taxpayers, the President has created a budget dilemma that he can now help solve in effect by taxing foreign-oil suppliers instead.

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