Broad-based Energy Taxes

January 30, 1993

Treasury Secretary Lloyd Bentsen is too savvy in the ways of Washington to loft a big balloon without some assurance he has President Clinton's support. So when he says a broad-based energy tax would raise revenues, help the environment and reduce the nation's dependence on imported oil from unstable regions, he is softening up citizens for the undefined "sacrifice" Mr. Clinton mentioned in his inaugural address.

If more taxes must come, this will do as good as most. If it finds favor, it could eventually lead the way to more general taxes on consumption -- sales or value-added or higher levies on spent income -- that would reduce the Treasury's reliance on regular income taxes as its principal source of revenue. The major industrialized countries collect about 30 percent of their revenues from consumption taxes, almost double the 17 percent share of total tax revenues collected by federal, state and local governments in the U.S.

Many economists have long been critical of the tax mix in this country because it encourages spending rather than savings and thus limits the amount of capital available for investment and growth. But this assumes the Clinton administration is prepared to hold down federal spending. So far the evidence is skimpy. Voters may merely have exchanged a borrow-and-spend administration for a tax-and-spend administration.

What makes a broad-based energy tax preferable to a boost in gasoline taxes or an excise tax on imported oil is that it comes closest to meeting the test of fairness. It would not penalize states with wide-open spaces, as a gas tax would, or unduly hurt urbanized coastal regions where there is a heavy reliance on imported heating oils.

If the president succeeds in tilting the tax system burden from income to consumption, he should try to exclude essentials and offer some form of compensation to lower- and middle-income groups. After all, these groups were promised a tax break by Candidate Clinton and are likely to get a tax hike instead. The important thing is to persevere with intelligent tax reform. This country is so wedded to the income tax that it is falling more and more out of sync with other industrialized countries just when increased international flows of goods and capital require the opposite.

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