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Whose Ox Will It Be, Anyway?


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WHOSE OX WILL IT BE, ANYWAY?

Pay more tax for the commonweal? Are you out of your mind, man?

Little more than a week into his Administration, President Bill Clinton is busily trying to build support for new energy taxes aimed at cutting the looming $300 billion federal budget deficit. Yet so far, the spirit of self-sacrifice is hardly the response Clinton has called forth. Within milliseconds after aides sent up trial balloons on the topic, consumer and business groups began wrangling over just whose taxes should jump.

Administration officials stress that they haven't chosen an option, or even definitely settled on an energy tax. "Nothing has been ruled out that I'm aware of," says Deputy Treasury Secretary Roger C. Altman. Yet no matter what choice is made--a higher gasoline tax, an oil-import fee, a broad-based energy tax, or a tax on the carbon content of fuel--"there's going to be a fight," predicts William T. McCormick Jr., chairman of CMS Energy Corp., a Dearborn (Mich.) utility holding company.

'SPINACH' TAX. Clinton's easiest option for raising $10 billion to $20 billion from an energy tax--the relatively small sum being talked about--may be a gasoline tax increase of 10 to 20 . For one thing, a gas tax could be sold as a "spinach" tax: hard to swallow but good for you because it encourages conservation. From Uncle Sam's viewpoint, gas taxes are easy to implement, since both federal and state governments already collect them. Besides, gas is relatively cheap. Adjusted for inflation, a gallon of gasoline now costs 30 less than it did in 1978--and sharply less than a gallon of bottled spring water.

Best yet, unlike most tax proposals, higher gas taxes enjoy broad support from business. Among proponents: the Big Three auto makers, Phillips Petroleum, Conoco and parent Du Pont, and the American Business Conference, a group of fast-growing midsize companies. "You could roll that revenue back into investments in our highways, which would enhance the mobility of the driving public and at the same time create jobs," says Gary C. Marfin, an energy policy analyst at Conoco, which supports a 10 -a-year hike over five years to total 50 a gallon.

Of course, many businesses, particularly transportation companies, would be hurt if the fuels they run on are taxed more. At American Airlines Inc., fuel is the second-largest expense, after labor. A penny jump in fuel prices would raise costs by $25 million annually. American says it would try to pass on the increase to customers in higher ticket prices. Union Pacific Corp., the nation's No. 2 user of diesel fuel after the U. S. Navy, also would be hit hard. Nonetheless, UP says it would support even a 50 -a-gallon hike if it were used for deficit slashing.

Most of all, consumers--a.k.a. voters--don't want to pay more for gas. Yet even their opposition may be muted. Given a choice of new energy taxes, 52% of Americans polled by BUSINESS WEEK from Jan. 22 through Jan. 26 favored a gas tax hike of 15 a gallon (page 2931). Earlier surveys found gas taxes had less support. Still, only a broad-based energy tax was less popular, picked by 44%. Taxes on oil imports and carbon were favored by 57% and 60%, respectively.

Why rising support for gasoline taxes? New cars have become more fuel-efficient in the past 10 years. And the relatively low price of gas means the bite out of consumers' wallets won't hurt as much. Despite popular belief, the pain of higher gas taxes would be fairly evenly spread across the U. S. BUSINESS WEEK calculates that a 20 gas tax hike would cost the average resident of the wide-open mountain states $93 annually, just $22 more than a Northeasterner would pay. Roberta K. Spillman, who ranches near Hotchkiss, Colo., says that if gas prices rise, she and husband Malcolm will economize by using their gas-stingy Nissan pickup more than their Ford. "We'll grin and bear it," she says.

If the pols go for a big energy tax, is there an alternative that beats the gas tax? A few companies say they prefer a broad-based tax on all forms of energy, including coal, nuclear, and hydroelectric. The main impact of such a tax would be to encourage energy conservation--not a bad idea, since U. S. energy efficiency has stagnated since 1987, even as labor productivity has risen. And a broad-based tax also has the advantage of not favoring one type of energy, such as nuclear, over another, such as coal.

Even if consumers prefer them, the remaining options are likely to draw much stronger opposition from business. A tax on the carbon content of fuels, for instance, could generate tons of revenue and potentially cut emissions of carbon dioxide, which is believed to contribute to the greenhouse effect. But it would devastate coal producers and hit basic industries such as steel, where energy tabs amount to more than 20% of production costs. "It's a goofy tax with negative effects on production and productivity," says Jerry Jasinowski, National Association of Manufacturers president.

A WINDFALL? Many domestic oil and gas producers are plugging for an oil-import tax, saying it would improve U. S. energy security. A fee of $5 per barrel of imported oil, says Kenneth L. Lay, chairman of Houston-based Enron Corp., would cut imports by 16% by 2000. It also would boost the sagging domestic oil industry, which has been clobbered by environmental regulations.

But unless the supply of oil from the Mideast is threatened, analysts see little political stomach for giving big windfall gains to oil producers. What's more, an oil-import fee might provoke foreign oil suppliers, notably Saudi Arabia, to cut production and force up prices. The Saudis "are very concerned about any form of energy taxes the new Administration may be contemplating," warns a senior Western diplomat in Riyadh.

Clinton's bottom line? No tax is likely to win broad support. Unless the rookie President can do a dazzling sales job on sacrificing for the commonweal, that is.Michael J. Mandel and Thane Peterson in New York, with Paul Magnusson in Washington, and bureau reports


Steve Ballmer, Power Forward
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