Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, March 2, 1993 TAG: 9303020333
SECTION: EDITORIAL PAGE: A-5 EDITION: METRO
SOURCE: By CHARLES J. DiBONA
DATELINE: LENGTH: Long
ENERGY TAX IS REGRESSIVE
PRESIDENT Clinton has proposed new energy taxes as part of his prescription for reducing the government's budget deficit. Peel off the "broad-based" label Mr. Clinton attached to his tax proposal and the words "gas-tax increase" become plainly as well as painfully visible.That's because Mr. Clinton wants to tax oil twice as heavily as any other kind of fuel, and half of each barrel of crude oil is refined into motor fuel - gasoline and diesel. The higher costs for crude oil would, sooner or later, make their way to the gas pump.
A gas tax, even a disguised one, would hurt the economy and fall much harder on some than others, with the poor and middle class taking the biggest hit, especially those who live in rural and suburban areas.
There also is a "truth in advertising" lapse in how the administration calculates the impact of the proposal. Instead of the increase of 7 cents per gallon in gasoline costs that the White House cites, the real figure will be in the 10-to-15-cent range. And that will be on top of another increase already mandated by the government of 10 to 20 cents a gallon (depending on the region of the country) to reformulate gasoline to combat air pollution.
This new measure is a tax on mobility that would take a heavy toll on those living and working in our Midwestern, Southern and Western states.
The vast expanse of the United States provides Americans with opportunities denied those living in smaller countries, such as Japan or Germany. America's immense Midwest serves as a granary to the world - and those food supplies that the world awaits depend on the mobility of American workers. Across America's vast expanses, raw materials, semi-finished goods and finished products move to the nation's cities, towns and ports. The average distance traveled by shipments of U.S. goods is nearly twice as far as in Japan. Low transportation costs help make U.S. goods competitive on the world market.
In most of our nation, cars are lifelines to jobs. As President Clinton said during the 1992 camaign, gas taxes are good "if you live in Boston and ride the subway." But they are not so good if you live in a state like Arkansas, President Clinton's home before he moved to Washington in January.
Households in Arkansas already pay about two and a half times more in gasoline taxes than households in Washington. Any new federal gas tax would also bear more than about two and a half times more heavily on the average Arkansas household than on its Washington counterpart. Much the same could be said of folks who live in Tennessee, Nebraska, Alabama or many other states.
Furthermore, residents of Washington have a subway they can use to cut their gasoline consumption and shield themselves from a stiff tax increase - an option not available to most other Americans.
Gas taxes are also regressive, hitting hardest at lower- and middle-income groups. A recent study by the Congressional Budget Office found that American families living on $10,000 to $20,000 a year spend twice as large a share of their income on gasoline as families living on $50,000 or more a year.
Mr. Clinton attempted to address the fairness issue by adding an earned-income tax credit for low-income families. However, earned-income tax credits are much better for low-income, inner-city people living near subways than for those who live in rural or suburban areas and need cars to get to their jobs. And they are no consolation at all for those American workers who will lose their livelihoods altogether because the companies they work for have suddenly become uncompetitive in the world marketplace.
A key question is: Would a gas-tax increase be worth it? Proponents point to $1 billion of new revenue for the U.S. Treasury for each penny-per-gallon increase in the gasoline tax. However, an earlier study by Data Resources, a prestigious economics-consulting firm, noted that - during the first year a hypothetical 50-cent-a-gallon tax was fully phased in - $400 million or more of each $1 billion would slip away out the Treasury's back door.
That's because the economy - weakened by the tax - would produce fewer receipts from other taxes, and obligate the government to spend more on unemployment compensation and other programs to help those American in distress. So, only 60 cents - and perhaps less - of each $1 of new gas taxes would remain for deficit reduction. And, those 60 cents would come at the cost of a weaker economy.
President Clinton is right in saying that the deficit must be addressed. We all face difficult choices to do that. As President Clinton said, government will have to bring growth in spending under control, and the fairest tax increase will have to be chosen.
The best choice would be a tax that does not unfairly burden particular economic sectors or geographic regions, and that does not discourage saving or work effort. A broad consumption tax - such as a value-added tax - best fills that description.
To be sure, greater spending restraint and a VAT would not excuse Americans from making difficult choices. But those steps do offer more promise that our sacrifice will not be made in vain.
Charles J. DiBona is president of the American Petroleum Institute.