CLINTON'S BTU TAX PROPOSAL DRAWS MORE FIRE

Despite opposition from the U.S. energy industry, the Clinton administration's BTU tax has withstood some key tests. The House of Representatives supported the president's proposed economic program in principle, if not in detail, in a 243-183 endorsement of a budget resolution that calls for $104 million more in deficit reduction than Clinton sought.

March 29, 1993

5 min read

Despite opposition from the U.S. energy industry, the Clinton administration's BTU tax has withstood some key tests.

The House of Representatives supported the president's proposed economic program in principle, if not in detail, in a 243-183 endorsement of a budget resolution that calls for $104 million more in deficit reduction than Clinton sought.

The BTU tax was specifically challenged in a Senate amendment brought by Don Nickles (R-Okla.). The Senate rejected his proposal to reject a BTU tax in a 53-46 vote, which was along party lines except for the fact that Democrats David Boren of Oklahoma, Bob Krueger of Texas, and Richard Shelby of Alabama voted with Republicans.

Lobbyists said the vote meant only that the Senate was unwilling to reject a BTU tax out of hand. It does not necessarily mean the Senate will accept detailed BTU tax legislation later this year.

The Senate approved a provision, 88-12, stating that the budget should not include a proposed 525% increase in the inland barge fuel tax.

And it rejected 52-48 an amendment by Paul Wellstone (D-Minn.) proposing that the BTU tax not apply to nonconventional fuels.

Treasury Sec. Lloyd Bentsen later said the BTU tax would not be applied to ethanol and methanol used as fuel.

API'S CONCERN

At a House ways and means committee hearing on the BTU tax last week, Marathon Oil Co. Pres. Victor Beghini noted that an NBC News-Wall St. Journal Poll found 62% of Americans opposed the tax while only 35% favored it.

Testifying for the American Petroleum Institute, Beghini predicted, "The tax will cripple the domestic refining industry, reduce domestic energy production, and narrow the field of competition in the industry by driving some small to medium sized firms out of business."

Beghini also said, "The most onerous aspect of the tax for our industry and its customers is that the rate for petroleum is 2 1/3 times greater than the tax on competing fuels.

"For an industry that has lost 450,000 jobs over the past decade and is spending billions of dollars annually to comply with new environmental mandates, this additional blow is unconscionable."

He said the BTU tax collection point should be as close to consumers as possible, and there should be no tax on fuel used to produce fuel.

"A third problem is the fact that the tax rate is indexed to inflation. Over the past 10 years, the price of crude oil has fallen 44% while inflation has increased by more than 44%."

GAS INDUSTRY'S VIEW

Richard Terry, chairman and chief executive officer of Peoples Energy Corp., Chicago, testified for the American Gas Association.

He said AGA opposes all broad based energy taxes aimed at reducing the federal budget deficit or raising revenue. But if an energy tax is enacted, it should be in the form of an increase in the gasoline excise tax or an oil import fee.

"If the administration's proposed BTU tax is enacted, the natural gas industry encourages that it be structured as an excise tax paid by the ultimate consumer or end user and collected by the entity selling gas to that consumer.

"Collection of the tax at any other point, such as the city gate, wellhead, or pipeline, could create serious market distortions and significant burdens in the collection, operation, and administration of the tax."

AGA said if the tax is levied at the city gate, utilities should be allowed to immediately pass through the full costs of the tax in consumer rates rather than have to go through state regulatory commissions.

Robert Hauptfuhrer, chairman of Oryx Energy Co. and the Natural Gas Supply Association, agreed the last seller of the fuel should collect the tax.

He said, "Doing so minimizes the administrative burden, puts domestic and imported gas on an equal footing, and avoids potential conflicts with other important government policies.

"The imposition of the tax at any other collection point will result in higher administrative costs, greater risk of tax avoidance, and market distortions. There also would be considerable risk that not all of the tax would be passed through to consumers.

"President Clinton and many in Congress have stressed their support for greater use of clean burning natural gas. It would be tragic if the BTU tax were imposed in such a way that domestic gas supplies are reduced or the industry's ability to transport and distribute this clean burning fuel is impaired."

Barry Williamson, a member of the Texas Railroad Commission, predicted a BTU tax will force many marginal wells to be shut in.

"Everything we could do through Texas regulatory and tax codes to create new jobs and increase production will be more than wiped out."

OTHER VIEWS

In other developments, the Ingaa Foundation released a study concluding the proposed BTU tax would have the smallest effect on natural gas demand of any energy tax options, except for a tax increase strictly on gasoline and diesel fuel.

California Independent Petroleum Association officials met with administration officials to warn them the BTU tax would have a devastating effect on California heavy crude production, which relies on natural gas to create steam for enhanced recovery.