BTU TAX PLAN HEADED FOR BIG CHANGES IN SENATE

The Senate finance committee will make major changes in President Clinton's BTU tax proposal when it begins marking up the U.S. deficit reduction bill this week. Clinton made a number of compromises to persuade House of Representatives members to pass the bill. They did so in a 219-213 vote May 27. The president talked to about 60 House members, some of them several times, To win House passage, Clinton agreed to accept a smaller BTU tax in the Senate bill and to make three major changes:

June 7, 1993

5 min read

The Senate finance committee will make major changes in President Clinton's BTU tax proposal when it begins marking up the U.S. deficit reduction bill this week.

Clinton made a number of compromises to persuade House of Representatives members to pass the bill. They did so in a 219-213 vote May 27.

The president talked to about 60 House members, some of them several times,

To win House passage, Clinton agreed to accept a smaller BTU tax in the Senate bill and to make three major changes:

Provide a rebate for exports of energy intensive products.
Give refiners a partial BTU tax exemption for production of heavy oil and petroleum coke.
Tax imported refined petroleum products.

The deficit reduction package includes $496 billion in tax increases or spending reductions during 5 years. The BTU tax amounts to $71 billion of that.

Sen. Daniel Patrick Moynihan (D-N.Y.), finance committee chairman, said the $71 billion may be cut by one-fourth to one-third. He said the administration might accept $30 billion in additional budget cuts, most of it in the Medicare program.

SENATE OUTLOOK

Democrats hold an 11-9 majority over Republicans on the finance committee, and they need the votes of committee members David Boren (D-Okla.), John Breaux (D-La.), and Kent Conrad (D-N.D.) for passage. All three have raised major objections to the BTU tax.

Boren and three other senators have introduced a bill that would eliminate the BTU tax and require deeper spending cuts. Boren has pledged not to vote for any kind of a BTU tax but has not ruled out another type of energy levy, citing a gasoline tax.

Breaux said the finance committee bill must contain more spending cuts than the current House proposal, contain more incentives for job creation in the energy industry, and correct the anticompetitiveness of the BTU tax.

He said if the administration increased the federal gasoline tax 8cts/gal "and did away with all the other features of the BTU tax, which nobody understands and nobody wants to play with, make some more spending cuts, then that, I think, is a plan a majority of the members of the Senate probably could support."

EFFECT ON MARKETERS

Phillip Chisholm, executive vice-president of the Petroleum Marketers Association of America, charged the BTU tax would cause "absolute chaos" in the petroleum distribution system.

He said the major problem is with No. 2 middle distillate, which is used for diesel motor fuel, farm equipment, home heating oil, and construction equipment.

He said the House bill imposes separate storage requirements on petroleum distributors. The bill requires various categories of fuel to be dyed because they carry different BTU taxes. As a result, some marketers will have to provide as many as four storage tanks for what is essentially the same fuel.

Chisholm said the problem is compounded by a Clean Air Act amendments regulation which, effective Oct. 1, will require low sulfur No. 2 oil to be used for on-highway purposes and to be stored separately from the higher sulfur fuel.

He said, "Building new storage facilities for a two fuel system will be a major new expense for many marketers, but the prospect of having to build new facilities for three and possibly four categories will be simply impossible for many marketers."

He said the situation opens the possibility for fuel disruptions and shortages.

The cause of the problem is the proposed supplemental tax on oil but not on other energy sources. If all energy sources were taxed at the same rate, there would be no need for costly, unnecessary, separate storage facilities.

Chisholm said, "We strongly believe the simplest, most straightforward approach to dealing with these problems is to strike the supplemental tax on oil. The lost revenue should be made up by additional spending cuts or adjustments to the existing proposed BTU rate."

MANUFACTURER'S VIEW

Jerry Jasinowski, National Association of Manufacturers chairman, said, "The narrowness of the House vote is the death rattle of the BTU tax, which we are confident will be killed in the Senate."

Jasinowski also is chairman of the American Energy Alliance, a coalition of more than 1,300 manufacturers, farm groups, consumer organizations, small businesses, and associations that oppose the BTU tax. The U.S. Chamber of Commerce and the National Federation of Independent Businesses recently joined NAM in the alliance.

Jasinowski said, "Only a week ago proponents were certain it would be a cakewalk in the heavily Democratic House. But this proposal barely survived despite an all-out push and even more concessions by the White House.

"We are encouraged by the House vote and by the House debate that preceded it. Even those who voted for the BTU tax did so for reasons unrelated to the tax, for which I heard virtually no defense. It is the worst kind of tax to be considering-one that hurts jobs, growth, and production."