William T. McCormick Jr.
Chairman and Chief Executive Officer
Consumers Power Co.
Jackson, Mich.
The prospect of higher taxes on U.S. energy is very real as the federal budget summit moves forward.
However, there is a world of difference between various proposed energy taxes and their effect on Americans. As President Bush said, "I think taxes wrongly applied can kill economic growth."
In light of increasing recessionary concerns and tight credit, proposed higher energy taxes on either BTU or carbon emissions should be rejected. The proposed BTU tax would apply to all key fuels-natural gas, oil, and coal-as a means of raising revenues to shrink the nation's budget deficit. The second tax would be applied to fossil fuels that emit carbon emissions: oil, coal, natural gas, gasoline, and other fuels.
While backers estimate that either tax would generate $30-40 billion/year when fully implemented, these taxes would be uneconomical, regressive, and inequitable. Either a BTU tax or a carbon tax will hurt America's industrial competitiveness by increasing the cost of goods and services.
GASOLINE TAXES
If we must increase federal revenues, a higher tax on gasoline consumption would have less adverse economic impact and cause much less harm to America's economic muscle, its major industries.
These industries, makers of steel, cars, chemicals, durable consumer goods, and a host of other basic economic building blocks, are already engaged in tough competitive struggles with Japan, West Germany and other countries. While higher gasoline taxes would have a modest impact on these industries, the harm would be substantially less than the full body blow caused by BTU or carbon taxes, which would impose billions of dollars in additional expenses.
Some have characterized energy taxes as similar to "sin taxes." However, this analogy is faulty because sin taxes apply to discretionary items, not necessities. Heating one's home or using electricity is not a luxury.
Many low income people already encounter heat-or-eat choices. Further burdening them with regressive taxes would be unconscionable because electric and natural gas bills nationwide could increase by 8% if either tax were implemented.
Unlike a BTU or carbon tax a gasoline tax is not highly regressive. It would be less burdensome on low income people who face difficult household energy budget decisions.
A gasoline tax also would reduce dependence on foreign oil suppliers and encourage conservation and improved efficiency for vehicles-by far the largest users of oil. With U.S. oil imports amounting to half of total U.S. consumption, such an incentive would decrease dependence on the Persian Gulf.
A portion of the revenues from a gasoline tax could also be used to fund oil and gas exploration tax credits, conservation credits, and additional federal research and development for expanded energy supply and more efficient energy utilization.
Because it's likely Congress will pass long-pending clean air legislation this year, estimated to cost $25 billion/year, double taxing America's industries with a carbon or BTU tax would not only be unfair but would not result in any additional environmental improvement beyond that mandated by the Clean Air Act. However, a gasoline tax would reduce consumption, resulting in substantial pollution reduction, thus adding to the positive impact on the environment intended by clean air legislation.
A CRITICAL DECISION
Implementing the right kind of tax is a critical decision.
Proposed BTU or carbon taxes are grossly inequitable because they discriminate against states with energy intensive manufacturing economies.
The top 10 energy intensive states would pay more than 50% of the total tax raised under either application just when clean air legislation will impose new economic burdens on energy and other manufacturing operations.
Imposing a broad tax on all energy use to cut the deficit is neither wise economics nor good energy or environmental policy.
If new taxes are necessary, it is important that our political leaders tax wisely.
An energy tax burdening America's manufacturing industry, on top of pending clean air costs, would be illadvised and damaging. A tax on gasoline consumption, if required, would achieve reasonable goals while minimizing economic harm to America.
Copyright 1990 Oil & Gas Journal. All Rights Reserved.
