WATCHING WASHINGTON LESSONS FROM THE TAX BILL

With Patrick Crow After an epic 6 month struggle with Congress, President Clinton has signed into law his $496 billion deficit reduction bill. The package, which received Clinton's signature Aug. 10, contains $255 billion in spending cuts and $241 billion in tax increases during 5 years.

Aug. 16, 1993

3 min read

After an epic 6 month struggle with Congress, President Clinton has signed into law his $496 billion deficit reduction bill.

The package, which received Clinton's signature Aug. 10, contains $255 billion in spending cuts and $241 billion in tax increases during 5 years.

FUEL TAX HIKE

For the petroleum industry, the cornerstone of the package is a 4.30/gal, $23 billion transportation fuels tax increase earmarked for deficit reduction. Effective Oct. I the federal gasoline tax will go to 18.4 and the diesel fuel tax to 24.4. Proponents said those increases will not reduce consumption because gasoline prices, when adjusted for inflation, are at historic lows.

The American Petroleum Institute has not calculated how the higher taxes will affect consumption. A spokesman said the old rule of thumb was that every 10% increase in price would cause a 2% decrease in consumption, but that yardstick may not be valid in times of low prices.

The law makes permanent 2.5 of the existing federal gasoline tax scheduled to expire in 1995, raising $8 billion.

The fuels tax applies to diesel used by boats and aviation fuels, although airlines' jet fuel is exempt for 2 years.

It hits compressed natural gas, propane, and alcohol fuels. It will total 48/Mcf on CNG, which the American Gas Association says is counterproductive to the national goal of encouraging alternative transportation fuels.

It also codifies a 3 year old Interior Department policy requiring western states to pay 25% of the cost of collecting royalties on oil and gas production on federal land in the West because Interior gives the states half the revenues.

Clinton's razor thin margins of victory, 218-216 in the House and 51-50 in the Senate with Vice Pres. Albert Core breaking a 50-50 tie vote by senators, are a tribute to the president's tenacious deal making and arm twisting.

A bill on such a major national issue should have been an easier sell for a president, still on his "honeymoon" with Congress, who enjoyed a healthy Democratic majority in Congress.

Now, polls show the American public is skeptical of the legislation. And the close roll call votes signal that Congress won't rubber stamp this administration's proposals.

So in retrospect, the fight was a lose-lose situation for Clinton. Defeat would have crippled his presidency. But such a desperate victory has only exposed its weakness.

WHAT WAS LEARNED

The experience has taught the petroleum industry, which was targeted for a punishing double tax on oil in Clinton's original $72 billion BTU tax proposal, that this administration will push bad energy policy in the guise of environmental protection.

And the industry found that its two purported allies in the White House, Chief of Staff Thomas McLarty and Treasury Sec. Lloyd Bentsen, don't carry as much weight with Clinton as does the environmentalist vice-president.