Energy tax proposal revamped Burden shifted toward consumers

April 02, 1993|By James Risen | James Risen,Los Angeles Times

WASHINGTON -- The Clinton administration, under pressure from powerful interest groups, said yesterday that it has restructured its proposed energy tax to reduce the impact on selected industries and shift the burden more directly to consumers.

In its first detailed discussion of the controversial energy tax, the administration disclosed that it has granted exemptions to a wide array of industries that have lobbied furiously for special treatment.

And, after initially saying that the tax -- one of the biggest revenue-raisers in the president's long-term economic package -- would be levied as close to the source of energy production as possible, the administration said yesterday that it would seek to impose the tax closer to consumers instead.

For example, instead of having natural gas producers or pipeline operators pay the tax, it would be paid by utility companies at "the city gates" after the fuel has been transported across the country.

From the beginning, the administration has conceded that its energy tax would hit middle-income Americans harder than any of its other tax proposals. Now, administration officials say the latest changes increase the likelihood that the tax would be passed on directly to individual consumers.

"If the tax is to effectively promote energy conservation, it must be borne by the ultimate consumer," Treasury Secretary Lloyd Bentsen said in a statement. "The administration is continuing to explore methods of assuring that the tax is in fact passed through to those who use the energy."

The decision to hit consumers more directly also means that less of the burden would be borne by businesses in highly competitive industries that otherwise might be forced to absorb the cost of the tax to keep prices down.

To further ensure that the costs of the energy tax are borne by consumers, the administration is proposing to take away certain tax credits from utilities in states where regulators don't allow utilities to fully pass through the costs to ratepayers. That provision seems to ensure that most consumers would see a separate new charge on their electric bills for the federal energy tax.

Some industries have been exempted from the tax altogether, including makers of petrochemicals and plastics that use crude oil as a raw material, steelmakers that use coal and coke in steel production, international airlines that use jet fuel, and producers of ethanol, methanol and other alternative fuels. In California, oil producers that use natural gas to help extract heavy oil from wells would also get an exemption.

In addition, the administration said, it is proposing to "index" the energy tax to account for inflation beginning in 1998. That means that the levy would automatically increase to keep pace with living costs, ensuring that the government could count on the tax as a major source of revenue far into the future. If approved by Congress, the energy tax will go into effect July 1, 1994.

When it first announced the broad outlines of its energy tax proposal in President Clinton's economic plan in February, the administration said the tax would raise $70 billion from 1994 to 1998 and would be a major component of the long-range deficit-reduction program.

Yesterday, the administration refused to provide updated revenue estimates for the energy tax, saying only that it would still raise close to the $70 billion projected earlier.

"In order to get the support of these groups, they've created all these exemptions, and you know that will just encourage other groups that didn't get exemptions to push for them in Congress," said Ed Rothschild, energy policy director for Citizen Action, a Washington-based consumer group.

One important exemption was given to consumers in the nTC Northeast, where home heating oil is an important -- and high cost -- source of energy. The administration said it would impose the energy tax on home heating oil at the same rate as for natural gas and coal, which would put it at a lower rate than for other oil products.

Under the Clinton plan, oil is taxed at a higher rate than all other forms of fuel. During last year's presidential campaign, Mr. Clinton talked of imposing a type of energy tax called a carbon tax, which would have hit coal, and coal-producing states and coal-using utilities, harder than other industries. But, confronted with strong opposition from West Virginia's powerful Democratic Sen. Robert C. Byrd, the president relented and restructured the tax to lessen the impact on coal.

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