Clinton appears set to choose inconspicuous way to raise taxes on energy

February 16, 1993|By Karen Hosler and Gilbert A. Lewthwaite | Karen Hosler and Gilbert A. Lewthwaite,Washington Bureau

WASHINGTON -- President Clinton appears ready to raise taxes on energy in the least visible way -- through a less-conspicuous levy on the heat content of fuel instead of an easy-to-spot sales tax at the gasoline pump.

As part of his effort to spread the energy tax burden as broadly, thinly and evenly as possible, Mr. Clinton's evolving plan is now centered on a proposal that would raise taxes on most forms of fuel, including coal, oil and natural gas, on the basis of British Thermal Units (BTUs) -- a means of measuring energy content.

This would require the creation of an entirely new and probably complex tax collection system, and it was unclear yesterday whether the Clinton administration has settled yet on how that might be done.

But with a relatively low target that one source familiar with the discussions pegged at $20 billion over four years, the burden would be so spread out that while most everyone who drives a car, heats a house, runs an air conditioner or uses any form of electricity would be affected, they may not become keenly aware of it.

For example, the gasoline tax would have to be raised by a nickel a gallon to raise $20 billion over four years. Under a BTU-based tax, the tax on gasoline may not rise more than a penny or two per gallon and it would probably be levied at the refinery rather than at the gas pump.

But Mr. Clinton also is said to be seriously considering a separate oil fee, dubbed a "national security premium" on oil, that would drive up the prices of gasoline and home heating oil.

The energy package, which the Clinton administration is expected to promote as an environmentally attractive "consumption tax," would exempt from new taxes renewable energy alternatives to fossil fuels, such as solar power and windmills.

A BTU is the amount of energy required to raise the temperature of one pound of water one degree Fahrenheit. Because it is based on energy content, the BTU-based tax would hit coal the hardest, then natural gas, then oil.

The potential impact on the individual user would be difficult to determine until more details of the proposal are known, analysts said.

But according to one study, the effect after four years of the BTU-based tax could be a 20 percent rise in the price of coal to about $6 per ton; an extra $1.50 per barrel of oil -- which now goes for about $20; and 25 cents or more per 1,000 cubic feet of natural gas, the price of which varies from region to region between $2 and $5.

In developing their energy tax proposal, which may prove the most politically volatile part of the economic plan Mr. Clinton will present to the nation tomorrow night, the president and his advisers weighed a variety of options and threw out the most objectionable.

Many congressional leaders argue that raising the federal tax on gasoline would be the quickest and easiest way to produce a substantial sum of money, and that option was high on Mr. Clinton's list early last month. But it was rejected after critics said it would put too great a burden on the poor and on drivers in western states.

The president also considered imposing a sales tax on energy at the retail level and a similar "ad valorem" tax at the wholesale level.

But Mr. Clinton told reporters yesterday he considered the BTU-based tax to be more fair to the middle class and more progressive.

"An ad valorem tax reinforces price changes," the president explained. "In other words, if you have an ad valorem tax and the price of one fuel goes up, then the tax rate goes up. So, it would aggravate whatever price changes are out there in the market, and that would hurt the consumers more."

Mr. Clinton declined to say whether he had settled on the BTU proposal, but several members of Congress who met with the president and Vice President Al Gore yesterday came away with that impression.

"BTU appears to be the one they are talking about," said Rep. Romano L. Mazzoli, a Kentucky Democrat. "Gore spoke at length about how they went into this whole energy tax. They are looking at BTU. They think that will put us in a more harmonious position with the rest of the world, Japan, Europe, all of whom seem to be moving toward broad-based energy tax."

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