BUDGET PACKAGE BAD ECONOMICS, POLITICS

In a way, the federal deficit-reduction plan enacted this month in the U.S. affects the oil industry the same way it does the middle class. It will hurt both-but not directly. Like the middle class, which makes no sacrifice evident in the income tax tables, the oil industry dodges a bullet but awaits a barrage. President Bill Clinton had proposed a BTU tax with a special levy on oil. The idea gave way to a less-damaging 4.3/gal tax on transportation fuels in a package of tax hikes otherwise

Aug. 16, 1993

4 min read

In a way, the federal deficit-reduction plan enacted this month in the U.S. affects the oil industry the same way it does the middle class. It will hurt both-but not directly.

Like the middle class, which makes no sacrifice evident in the income tax tables, the oil industry dodges a bullet but awaits a barrage. President Bill Clinton had proposed a BTU tax with a special levy on oil. The idea gave way to a less-damaging 4.3/gal tax on transportation fuels in a package of tax hikes otherwise focused on upper-scale incomes.

RAISING REVENUES?

Overall, the budget measure is supposed to raise revenues by a net $241 billion over 5 years. But it will not do so. The higher taxes will erode business incentives and reduce economic activity. The tax base will shrink in response; promised government revenues won't materialize. And the measure neither assures that its spending cuts will be implemented nor checks future profligacy. It will, therefore, do little if anything to reduce the federal deficit and much to dampen U.S. economic growth. And who will hurt? The oil industry and the middle class, among others. Demand for petroleum products will suffer. And middle class jobs will disappear as wealthy taxpayers reduce spending and investment to avoid their new tax burden.

With good reason, the middle class sensed doom early in the political shenanigans that produced this mess. It is not the first time the government has pursued deficit reduction at all cost. The last such plunge, in 1990, cost former President George Bush his job, had no discernible effect on the deficit, and-by the way-added 50/gal to the gasoline excise. Why sip from the same old bottle, the middle class asked its elected representatives, when economic poison tasted so foul the last time around?

Misperception, Clinton replied. The people have been fooled, he declared. Taxes will rise only for the wealthy, he insisted.

He was wrong. The people weren't fooled. They were justifiably concerned about what happens after taxes rise for the wealthy - like layoffs. But Clinton scoffed at their churlish worry. With a phenomenal political squeeze, he forced another tax-and-spend package down the throat of a balky nation and then - amazingly - claimed to have won a mandate. This President thinks he knows better than the voters do what's good for them.

Voters will get their say in congressional elections a year from November and the next presidential election 2 years after that. But what might happen in the meantime? Clinton is already panting about health care. Where will the money come from for that? Would the President dare resurrect the BTU tax idea? Would Congress dare raise gasoline taxes again in another compromise with the preposterous? Would lawmakers dare make a tax hike effective before it was proposed?

LOOMING ISSUES

It will get worse. So far, the Clinton team has been so busy ending the decade of greed that it hasn't had much time for saving the planet. As elections approach, it will want to make voters feel good about themselves with a big, sweet dose of environmentalism: wilderness designation for the Arctic National Wildlife Refuge Coastal Plain, perhaps, or consumption limits on fossil fuels.

Fantasy? This is an administration that wanted a special oil tax just to reduce consumption, that thinks taxes help the economy, and that considers environmental regulation good business. This is an activist administration that thinks it has a mandate. And it is taking command of an economy already gagged by taxes and trapped in environmental restrictions. For the oil industry, 3 years from next November will be a long time coming.