With his "no new taxes" pledge fading from his lips, President Bush probably will look to the energy industry for more revenue, analysts at Salomon Bros. say.
Although it is doubtful Congress will pass any new taxes this election year, the New York investment firm believes an eventual hike in federal energy taxes is inevitable. Gasoline appears the most likely target.
Bush has admitted that increasing government revenue-raising taxes-is the only way to avoid a $90 billion budget cut during fiscal 1991.
Salomon Bros. says energy taxes head the list because they would:
- Raise the most revenue and be easiest to manage.
- Reduce U.S. dependence on oil imports, thereby cutting the trade deficit.
- Score the most points with environmentalists who favor any tax that might curb air pollution.
Overall, Salomon Bros. sees three options-a gasoline tax hike, an oil import fee, and a total energy consumption, or BTU, tax. U.S. refiners will come out on the short end no matter which is enacted, the firm says.
Major U.S. energy producers and many independents would benefit from an oil import fee. And many capital goods and construction linked firms stand to gain from a higher gasoline tax, if it is earmarked for road improvements or mass transit.
GASOLINE TAX
Salomon Bros. says a gasoline tax increase would be the easiest to administer but might be the most politically difficult to enact.
Each 1/gal increase in the present 9.1/gal federal excise tax on gasoline Gould raise $1.1 billion of revenue. Most proposals call for a 10-15/gal hike, which would boost federal revenue by $11-16 billion before subtracting related government expenses.
Main advantages of this option are that it would require no new federal programs, agencies, or collectors.
Salomon Bros. says U.S. energy producers would not be affected in the short term by a gasoline tax hike, except for refiners and marketers.
In the long term, however, the resulting decline in U.S. oil consumption might spark a drop in oil prices. A gasoline tax increase of 10/gal could reduce U.S. gasoline consumption by 1 3% within 1-2 years of enactment.
Its main drawback is political. It is perceived by most lawmakers as a regressive tax.
Refiners of high octane unleaded would be most harmed, says Salomon Bros. Because consumption of nearly all premium gasoline is discretionary, the resulting higher prices would slice demand. Also hurt would be independent refiners.
On the other hand, construction firms, road builders, mass transit equipment makers, and other capital goods producers stand to benefit from a gasoline tax hike.
Such benefits would hinge on three factors-the U.S. government spending part of the increased revenues to rebuild highways, freight hauling shifts from trucking to rail, or consumers switching from private cars to public transit.
OIL IMPORT FEE
Salomon Bros. figures a $5/bbl oil import fee may boost total U.S. tax revenues by $15 billion/year. It admits such a figure is a guess because of unknowns such as which countries would be exempt-probably Western Hemisphere trading partners such as Mexico and Venezuela.
Among an import fee's pluses are that it would raise a great deal of money for the government, and it would cut imports thus propping up the U.S. industry.
Because oil imports are the nation's marginal energy supply, Salomon Bros. says, such a tax offers something for everyone.
An increase in the price of oil imports would push up the whole price structure. A $5/bbl fee would yield a $2-3/bbl increase in all U.S. oil and energy prices.
By far the biggest winners from such a fee would be U.S. independent oil and gas producers and large petroleum firms that produce a lot of domestic energy.
An import fee, however, would prove to be "an administrative nightmare," Salomon Bros. warns. Many oil traders would simply begin funneling crude through tax exempt "safe harbors" such as Mexico.
U.S. refiners would be harmed by the increase in their feedstock price and the likely drop in products demand.
BTU TAX
Based on U.S. primary energy use of 40 million bbl of oil equivalent (BOE)/day, at an assumed value of $15/BOE, a flat 5% fee on all energy might produce $6-9 billion in added federal revenue.
That figure assumes total U.S. primary energy spending of $220 million, minus the amounts used by federal, state, and local governments or spent on subsistence fuels such as firewood and peat, which could not be taxed.
No one would benefit from a BTU tax, says Salomon Bros., except the federal government and maybe some tax agents and auditors.
What's more, such an excise tax would cause many problems. It would, for example, apply equally to fuels the government hopes to advance, such as gas and solar, and to those it seeks to discourage.
Farmers in areas such as the Great Plains states, who must endure cold winters and transport their products long distances, would be hardest hit. Also harmed would be pensioners and retail oriented businesses.
Salomon Bros. says a BTU tax would be costly and hard to administer. Because discretionary income and energy use would drop, overall U.S. economic activity might also slide.
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