OIL AND THE U.S. BUDGET DEFICIT

They're back. Fretful U.S. legislators once again are scrambling for money. They seem to think that if they raise taxes here and there, a little at a time, voters won't notice. Last year they raised taxes-a little here, a little there-by $165 billion during 5 years. It was supposed to reduce the federal budget deficit by $500 billion in the same period. Voters weren't supposed to notice.

Aug. 5, 1991

4 min read

They're back.

Fretful U.S. legislators once again are scrambling for money. They seem to think that if they raise taxes here and there, a little at a time, voters won't notice. Last year they raised taxes-a little here, a little there-by $165 billion during 5 years. It was supposed to reduce the federal budget deficit by $500 billion in the same period. Voters weren't supposed to notice.

But the deficit continues to grow. There's been a recession. Struggling state and local governments are raising taxes, further eroding the federal tax base. So legislators are back, hunting money, hoping voters won't notice.

Oil and gas companies should demand a halt to this deceit. At least two elements of the latest fiscal mischief target their industry directly.

SPR SETASIDE

One ploy, in a bill passed by the House energy and power subcommittee, would require that 1% of all oil produced or imported in the U.S. be placed in the Strategic Petroleum Reserve. The setaside provision seems like a way for the government to finish filling the SPR without paying for the oil. It seems like government service at no cost. It won't work.

Under the legislation, producers and importers would keep title to the diverted oil and receive proceeds from its eventual sale. Collectively, they'd be making a huge, interest-free loan of indefinite term. The cost-foregone earning potential of funds used to buy the stored oil, net of price changes would depend on the time that elapsed between purchase and sale.

The cost would reduce profits of oil producers and importers or of their customers. Lower profits mean lower income tax payments. Federal revenues would suffer. The deficit would grow. In a few years, lawmakers would once again have to forage through the economy for money.

It's part of a dangerous pattern. Unable to fund popular programs, lawmakers require private companies to do the work and bear the costs. The government appears to get something for nothing-until the economic damage shows up as reduced federal revenues.

The other money-raising ploy directed at petroleum is a proposal, passed last week by the House ways and means committee, for another 5/gal hike in the federal gasoline tax. Supporters say the government needs the money to repair and build roads. Nonsense. The Federal Highway Trust Fund will contain $19.5 billion at the end of the current fiscal year-up $3.5 billion from the year before.

Lawmakers want money already in the fund to stay put for the sake of fiscal cosmetics. At the same time, they want an excuse to raise taxes, perhaps hoping to repeat last year's gambit of dedicating part of the receipts from the new gasoline levy to the general budget for deficit relief-or new programs. The appeal to highway repair is thus a callous joke on motorists.

TENET OF LIMITS

The deceptions must cease. Lawmakers must face up to the proposition that new taxes can reduce federal revenues by discouraging economic activity. The notion frightens many of them. It suggests a limit in the share of national output to which the government can lay claim without causing damage. The limit in turn suggests that lawmakers should assess the government's ability to pay before they commit it to spend. Institutional failure to heed this tenet of economic life explains why the federal budget deficit grew so large and why tax hikes can't make it go away.

Governments bite too hard on the U.S. economy. Voters know it, which accounts for their recent resistance to higher taxes. Lawmakers haven't caught on. They won't until large numbers of them begin to lose their jobs.