BUSINESSWEEK ONLINE : APRIL 10, 2000 ISSUE
WASHINGTON OUTLOOK

The GOP Won't Get Much Mileage from the High Price of Gas


For seven years, Republicans have searched in vain for ways to attack President Clinton for his handling of the economy. Low inflation, low unemployment, and rapid growth have shielded the President from much of the criticism. So when gasoline prices began rising this year, the GOP thought it finally saw an opening--and pounced.

In speeches and campaign ads, GOP lawmakers are looking to blame sky-high oil prices on what they call ''the failed Clinton-Gore energy policy.'' They complain that the Prez and would-be successor Al Gore have done little to boost domestic production and end dependence on foreign oil, let alone help consumers cope with huge price spurts. So on

Mar. 30, Senate Republicans were set to ride to the rescue by scheduling debate on a measure to repeal some or all of the 18.4 cents-a-gallon federal gasoline tax.

BIG PLAN. Problem is, the New Economy appears to be muting any broad consumer backlash--for now. That could be bad news for the GOP--especially Senate Majority Leader Trent Lott, who has big plans to use the gasoline crisis to drum up anti-Democratic sentiment in Senate races this November. According to a Mar. 15 Gallup poll, 63% of Americans view high prices at the pump as more of a temporary annoyance than a budget-buster.

The reason? They're spending less on fuel these days. Because of conservation measures and the overwhelming preference by homeowners for natural gas over heating oil, consumers spend only about 2% of what they earn on fuel, down from 7% in 1980. And gasoline prices that average $1.60 a gallon aren't even close to the 1980 level, when a gallon of gas cost $2.38 in current dollars. Even Alan Greenspan is optimistic. On Mar. 27, the Federal Reserve chairman told lawmakers that he sees no indication that higher oil prices are ''embedding themselves in other areas of the economy.''

Such economic fundamentals, however, aren't deterring Republicans. Lott wants Congress to enact a ''holiday'' on the entire 18.4 cents federal gas tax if prices exceed $2 a gallon. If that doesn't happen, he'll settle for repealing just 4.3 cents of the tax, which he delights in calling the ''Gore tax,'' since the Veep in 1993 cast the deciding vote on the budget package that raised the gas tax. ''We need to do something on an immediate basis so that people are not hammered by increasing gasoline and diesel prices,'' says the Mississippi Republican.

Lott at first ran into a firestorm of criticism, even from GOP loyalists. Turns out that cutting the ''Gore tax'' would deprive the Highway Trust Fund of $7 billion a year--money that lawmakers need to show constituents they're funneling tax dollars back home. Now, Lott would make up the shortfall by dipping into the budget surplus. But that could boomerang, too. In numerous polls, voters say they favor using the surplus to pay down the national debt and to preserve Medicare and Social Security. ''The idea that you would cut taxes but keep spending [the money] is inconsistent,'' says James Horney, senior fellow at the Center on Budget & Policy Priorities. ''The short-term response is for short-term political gain.''

But Democrats, too, are nervous. A Mar. 15-19 Pew Research poll shows consumers are paying closer attention to oil prices than to any other issue, including the stock market. And Gore, who says prosperity will continue if he's elected, could be in danger this fall if prices don't recede. For now, Dems are hoping the Mar. 28 agreement by oil-exporting countries to hike production by 1.45 million barrels a day will bring prices down. But if gas hits $2 a gallon this summer, or if drivers face long lines at the pump, Lott's effort to use the politics of oil to win Senate seats may not be overreaching--just premature.

By Laura Cohn
EDITED BY PAULA DWYER

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