As war on deficit begins, it's time tomorrow to pay the piper

November 30, 1990|By Mike Sante | Mike Sante,Knight-Ridder News Service

WASHINGTON -- So far all of the talk about raising taxes has been just that, a lot of talk. But tomorrow, Americans start paying Uncle Sam more at the gas pump and the airport ticket counter.

The federal tax on gasoline and diesel fuel will go up 5.1 cents a gallon, and the federal tax on airline tickets will rise from 8 percent to 10 percent.

Those are the first of the new excise taxes Congress and President Bush slapped on everything from cheap beer to luxury yachts last month as part of their effort to reduce the federal deficit.

Most of those taxes will not take effect until Jan. 1.

Most gas stations and airlines -- despite steep increases in gas and airline tickets already this fall -- are expected to pass along the costs of the new taxes to their customers immediately.

"We have no option," said Robert Welsh, president of Welsh Oil, a suburban Chicago company that operates 36 service stations, minimarts and truck stops in Indiana, Michigan, Pennsylvania and Virginia.

"At midnight we're just going to raise our prices 5 cents a gallon, and I expect most of our competition will raise their prices, too," Mr. Welsh said.

"In a competitive business like ours, we work on very small margins."

Gasoline prices had already risen by an average of 29 cents a gallon since Iraq invaded Kuwait Aug. 2, according to the American Automobile Association, prompting drivers to use less gasoline.

Higher fuel prices had also forced the nation's airlines to raise prices three times this fall, boosting ticket prices by an average of 15.3 percent and discouraging many would-be fliers.

Neil Geary, a spokesman for Amoco Corp. of Chicago, doubted that the higher gas tax would have "a dramatic effect" on the amount of gasoline Americans use. However, he acknowledged that it "will almost certainly reinforce the trend of consumers' being more cautious in their gasoline purchases."

Gasoline consumption dropped 2.7 percent in October, the American Petroleum Institute said.

Tim Smith, spokesman for American Airlines in Fort Worth, Texas, complained that "although the tax is not large" -- increasing the cost of most tickets by less than $10 -- "added to the other fare increases, it's one more thing that could reduce air travel."

The new taxes are part of the deficit-reduction plan President Bush and congressional leaders spent months battling over this HTC summer and fall.

Although that plan is supposed to cut the deficit by $42.5 billion this fiscal year, the government is still expected to set a new record for red ink, with the 1991 deficit exceeding $250 billion.

Among the tax increases that are to take effect New Year's Day are an additional 16 cents on a fifth of 80 proof liquor, 4 cents on a pack of cigarettes, 18 cents on most bottles of wine and 16 cents on a six-pack of beer.

The 5.1-cent gas tax increase is expected to cost drivers some $5 billion a year, according to the Federal Highway Administration.

The ticket tax increase is projected to cost air travelers an additional $736 million a year, according to the Department of Transportation.

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