White House's energy tax plan would be devastating, farmers say

May 19, 1993|By Los Angeles Times

OWINGS -- J. Allen Swann uses a lot of energy.

First, there's the cost of the propane to heat the greenhouse at the farm in northern Calvert County where Mr. Swann and his nephew, Jody, 26, are growing 56,000 tobacco plants.

Under the Clinton administration's energy tax proposal, Mr. Swann would pay an extra 2.3 cents on each of the 2,000 gallons of propane he uses annually. That's $46 in additional taxes.

Then there's the tractor that eats seven gallons of diesel fuel an hour while working the corn crop. Mr. Swann figures he puts TTC about 500 hours on the tractor a year, paying 93 cents a gallon for diesel fuel. Under the energy tax, that expense would go up as well, to around $1.01 per gallon, raising his annual diesel fuel cost by $280.

"The energy tax is going to be pretty devastating to the agricultural sector," said Terry Francl, a senior economist for the American Farm Bureau Federation. As farmers see it, the tax would be another in a series of federal actions that has raised the cost of farming, in an era when farm incomes have dropped sharply.

The White House has proposed the new tax, one of the largest in history, as part of a proposal to reduce the federal deficit nearly $500 billion over five years. Administration officials calculate that it will cost an American household earning $40,000 a year about $200 in higher energy costs and rising prices for goods produced by energy-dependent businesses.

Farmers, however, say they are caught in a special bind. Unlike those in other businesses, farmers have a difficult time passing their higher costs on to consumers. Heavy government regulation and stiff international competition often combine to dictate the price at which farmers must sell their goods.

Nebraska farmer Gene Wray grows corn and sorghum and raises cattle on his 4,500 acres near the small town of Scotia. When he started farming in 1979, diesel fuel cost 45 to 50 cents a gallon. Now he pays 83 cents a gallon.

That might be OK if his crops were not worth less today than they were 13 years ago. The same bushel of corn that earned Mr. Wray a little more than $3 in 1980 brought in $2.05 last summer. Over the same period, Mr. Wray's cost of living has gone up.

But by Mr. Wray's calculations, the energy tax would cost him an extra $1,730 a year in direct expenses for diesel fuel, petroleum, propane and electricity.

And that doesn't count indirect costs, he said. For instance, once Mr. Wray's cattle weigh 700 pounds, he sells them to Barney Peterson, who fattens them up for market sale. Mr. Wray thinks Mr. Peterson will be forced to offset his own higher energy taxes by cutting the price he pays for cattle.

Mr. Peterson did some quick calculations and estimated his production costs would rise $6,000 a year.

"Oh my gosh," he said. "Is it really going to cost me that much?" Mr. Peterson said he may well have to rethink his purchase

prices.

Administration officials agree that many farmers are struggling. However, they also argue that the energy tax is necessary to reduce the budget deficit and, in any case, is preferable to a gasoline tax that would hit rural communities even harder than urban areas.

"Hah!" said Sen. Kent Conrad, D-N.D. "That's the same thing as if you tell a patient suffering from cancer, 'You should be grateful, you could have had a heart attack!' "

So far, farmers have had some success making their case in Congress. Under legislation approved by the House Ways and Means Committee last week, taxes on gas and diesel fuels used for farm work would be cut to just one-third of the original amount proposed. In exchange, farm lobbyists agreed to relinquish the ethanol and methanol tax exemption promised them earlier.

If Mr. Conrad and others have their way, the administration will make more concessions, perhaps including a full exemption for all farm fuels.

But administration officials warn that exempting one sector of the economy would open the floodgates.

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