HOUSE PANEL OKAYS BTU TAX PACKAGE

The House ways and means committee has passed President Clinton's tax package after changing collection points for the BTU tax on U.S. fuels.

The full House is expected to approve the tax bill this week. The Senate finance committee will begin writing its version of the bill in June and complete work by June 18.

Sen. David Boren (D-Okla.) said he and Sen. John Breaux (D La.), both on the finance committee, are working with Republicans on the panel to craft a substitute for the BTU tax.

Democrats hold only an 11-9 majority on that committee. So Boren's and Breaux's votes are vital for passage.

WAYS AND MEANS CHANGES

The House committee approved the administration's tax package 24-14 with few changes. All Democrats on the committee voted for the bill, and all Republicans opposed it.

The entire package is designed to raise $246 billion during 5 years, the BTU portion $71 billion during 5 years.

In a brief open session, Republicans offered seven amendments to the bill, including one that would have wiped out the BTU tax plan. The committee rejected all seven in straight party line votes.

The committee accepted an amendment by Rep. Bill Brewster (D-Okla.) to move the collection point for the BTU tax on oil and gas closer to consumers. The tax on gas would be imposed on the final consumer and collected by the local distribution company, which would be secondarily liable for payment.

The tax on petroleum products would be collected at the terminal rack under a system similar to the current gasoline excise tax collection system.

Brewster said, "It was absolutely necessary we do everything possible to change the collection point and keep the tax from putting Oklahomans in the position of paving more than our fair share. The effect of collecting the tax any other place would have caused the loss of jobs and damage to the state's slowly recovering energy industry."

Ways and means exempted all home heating oil used for space heating from the 24.2cts./MMBTU surcharge on petroleum products. The Clinton administration had proposed exempting home heating oil used in private homes but not by businesses, apartments, and governments.

It also exempted any gasoline or diesel fuel used in farming but also dropped the administration's proposed exemption for ethanol, methanol, and their ether derivatives. Those now would be taxed at the same rate as other,fuels.

The panel also cut in half the proposed $1/gal fuel tax increase for inland barge operations, resulting in an additional tax of 50cts./gal atop a 17cts./gal tax in 1994.

And it voted to assess the BTU tax on imported goods that require a high level of energy to manufacture.

To cover losses from the latest exemptions, the committee raised the basic BTU tax rate to 26.8cts./MMBTU from 25.7cts. The petroleum surcharge remained at 34.2cts./MMBTU, making the total tax on oil products except home heating oil 61cts./MMBTU.

REACTIONS

Politicians speaking at the Independent Petroleum Association of America's annual meeting in Washington, D.C., at midmonth agreed the tax bill faces further tinkering in the Senate.

Treasury Sec. Lloyd Bentsen told the group, "We're having a tough time due to all the objections from interest groups," and "we have our work cut out for us" in the Senate.

"We'll see more changes in the Senate, but not from the (goal of $500 billion in deficit reduction."

When an IPAA member asked about possible incentives for marginal and stripper production, Bentsen said, "Our problem is how far we can go because we have so many asking for exemptions.

"The administration has not made a commitment or a determination on that issue. There are people in the House and in the Senate who will pursue it, and we will listen. We'll see what can be done. That is not a commitment. "

Boren praised Brewster for his "excellent work" to get the collection point moved.

Boren said he and other finance committee members want to "reconfigure" the tax package, explaining "there are better ways to raise revenues" than the BTU tax. "We'll have to have some revenues in the program, but in a way that won't hurt our competitiveness."

Boren declined to discuss specifics because "that would undercut my ability to do what I want to do."

Sen. Don Nickles (R-Okla.), who is not on the finance committee, said, "We're very close to having the votes, to defeat the BTU tax." He said after deductions for the negative effects of the tax the measure would net the government only $38 billion.

Sen. Bennett Johnston (D-La.) said the BTU tax should be replaced with an oil import fee or at least an $18/bbl floor price on oil imports that would enable producers to borrow money at the bank because it would serve as a floor price for U.S. production. He said, "We could put that in without costing anybody a penny."

Johnston said if the finance committee bill approves a BTU tax he may press for an amendment on the Senate floor to replace the BTU tax with a broad based consumption tax.

Sen. Malcolm Wallop (R-Wyo.) said Vice President Al Gore simply "doesn't want oil and gas produced" and said once a BTU tax is in place, the administration will attempt to double or triple it so the U.S. will meet carbon dioxide emissions limits set by the Rio De Janerio protocol on global warming. Wallop added, "This tax literally undoes the Energy Security Act we passed last year."

BENEFITS QUESTIONED

The American Petroleum Institute released a study it commissioned from DRI/McGraw-Hill, an economic analysis and forecasting firm, that predicted the BTU tax would reduce the U.S. gross domestic product tens of billions of dollars and eliminate hundreds of thousands of American jobs.

William O'Keefe, API executive vice-president, said his group supports Clinton's commitment to reduce the deficit and promote more robust rates of economic growth. "We agree with his economic objectives but believe the BTU tax is not consistent with those." The study said the BTU tax would contribute only 18% of the deficit reduction during 1994-98 under the Clinton program but would cause virtually all of the extra inflation of the program and more than 50% of its GDP losses.

API said, "Without offsetting monetary stimulus, real GDP losses between 1994-98 would total nearly $140 billion in 1987 dollars and job losses would total about 800,000."

It said dropping the BTU tax from the package would cut the GDP loss $73 billion for the period and reduce the job loss figure by 400,000.

"Replacement of the BTU tax with additional spending cuts or with a value added tax to raise the same revenues would reduce the program's GDP and employment losses. Such replacement also would encourage business investment and exports."