Senate Votes for Move to Kill Oil Windfall Tax

The Senate, making a symbolic but politically significant gesture to the ailing U.S. energy industry, approved a measure Thursday night that would repeal the federal windfall profits tax on oil.

Approval was by voice vote, after the 51-47 defeat of an effort to set aside the provision. The proposed repeal was offered by Sen. Don Nickles (R-Okla.) as an amendment to unrelated legislation to raise the federal debt ceiling to $2.3 trillion. Final action on the debt ceiling bill was expected next week.

A Complete Turnaround

The immediate effect of removing the windfall tax would be negligible, because the price of oil has plummeted so low that the federal government receives no revenues from the tax.

However, the vote signified a complete turnaround in the politics of energy since 1980, when long gasoline lines and soaring prices had fueled public outrage against the oil industry’s skyrocketing profits. The tax had been a key element of an intense, emotional struggle pitting those who produced oil against those who needed it.

Only six years later, a chronic glut has forced prices down as dramatically as they rose, and politicians fear a backlash from voters in battered oil-producing states.

In the Senate, where a number of crucial seats in oil-producing states are at stake in this fall’s elections, it could cost Republicans their fragile majority. One of those whose Senate seat is endangered by the economic crisis is Nickles, who faces a strong challenge from Oklahoma Democratic Rep. James R. Jones.

Senate Majority Leader Bob Dole (R-Kan.) said imposing the tax “was a bad idea when we did it, and it’s a good idea to repeal it.”

With exploration for new energy supplies almost at a standstill, the oil industry’s financial problems have spread to banks, real estate and almost every other business in energy-producing states.

Voters Demanded Relief

Voters in those states have demanded relief from their elected officials. “I listen to what’s happening back home, and I feel I am representing a war zone,” Sen. Lloyd Bentsen (D-Tex.) said.

But Sen. Howard M. Metzenbaum (D-Ohio) labeled the measure a blatant “grab by the oil industry and their friends in the Senate.” He said he had considered a filibuster but dropped the idea on assurances that the repeal had little chance of being approved by the Democratic-led House and ultimately becoming law.

Opponents warned also that political memory was short and that repealing the tax could come back to haunt lawmakers if oil prices rebound--”as they inevitably will,” added Sen. George J. Mitchell (D-Me.).

President’s Pledge

President Reagan pledged last spring to repeal the tax, in part to express sympathy for the industry’s plight. However, Reagan continues to oppose another measure demanded by the energy states: an oil-import fee. Sen. Gary Hart (D-Colo.) offered an amendment to impose a $10-a-barrel fee, but it was blocked on an 82-15 procedural vote.

The tax was part of a wide-ranging package of laws enacted to prevent a recurrence of the back-to-back energy shocks that jolted the U.S. economy during the 1970s and made it seem helpless in the grip of the Organization of Petroleum Exporting Countries.

Congress imposed the windfall-profits tax in exchange for lifting artificially low government price controls, which oil companies said were discouraging them from the expensive search for new domestic reserves needed to cut the nation’s reliance on imports.

The complicated tax system was designed to make the government a partner in the windfall the oil companies would receive when controlled prices on older reserves were allowed to rise to world market prices.

At that time, economists expected oil prices to continue rising to almost $55 a barrel this year and projected that the tax could bring in more than $20 billion, an aide to Bentsen said. By the time the tax began to be phased out in the early 1990s, the government was expected to have collected a total of more than $200 billion.

Projections Far Off

But those projections proved far off the mark, as a combination of energy conservation measures and a worldwide economic downturn created a huge oversupply of oil. Prices instead fell to their present level of roughly $12 a barrel.

Because the tax takes effect only when prices exceed $18 a barrel, the government is collecting nothing. Moreover, Nickles said, the tax is costing government and businesses hundreds of millions of dollars a year in bookkeeping costs.

In the initial procedural vote testing sentiment on the issue, Sen. Alan Cranston (D-Calif.) indicated that he opposed repeal, while Sen. Pete Wilson (R-Calif.) indicated that he supported it.

The legislation to repeal the windfall profits tax has no impact on the ongoing tax overhaul negotiations between House and Senate conferees. The windfall tax is applied separately to oil companies and is not an issue in the debate over corporate income taxes.

In other action, the Senate approved an amendment to make sure Social Security recipients receive cost-of-living increases. Under current law, automatic increases would take effect if inflation for the year ending Sept. 30 is 3% or more. However, the current rate falls short of that mark.

The amendment voted Thursday night would grant increases of about 2% regardless of the inflation figure.