Supporters of Proposal Draw Some Hope From Shift of Leadership in Congress : Reagan’s Stiff Opposition to Oil-Import Tax Makes Passage Unlikely

Earlier this year, at a private $1,000-a-plate fund-raiser in New Orleans for Senate candidate Rep. W. Henson Moore (R-La.), Treasury Secretary James A. Baker III was asked if the Administration would ever support a tax on imported oil. Baker’s reply--that President Reagan would not be asked to reconsider his opposition to such a tax until the oil industry united behind the proposal--gave hope to those attending the glittering affair that they still had a chance of winning Reagan’s backing.

But as more and more industry leaders fall into line behind a tax on imported oil to prop up the domestic energy business, don’t hold your breath waiting for Reagan to change his stance.

Don’t Say a Flat ‘No’

Baker “found the gentlest way to avoid the issue,” a Treasury official said. “You just don’t say a flat ‘no’ to a group of major contributors at a time like that, but the reality is that nothing has changed here.”

Supporters of the proposal, however, are cheered by signs that the climate on Capitol Hill for an oil-import fee has probably never been better.

With Southwestern politicians clamoring for federal aid to the devastated Oil Patch, they can expect to get a sympathetic hearing from powerful Texans who are set to assume key leadership posts in Congress. House Majority Leader Jim Wright (D-Tex.) will replace retiring Speaker Thomas P. (Tip) O’Neill Jr. of Massachusetts, who stood fast against an oil-import tax because it would substantially boost heating costs in the Northeast.

In the Senate, where the election shifted control from Republicans to Democrats, Sen. Lloyd Bentsen (D-Tex.) is taking over the chairmanship of the Finance Committee from Sen. Bob Packwood (R-Ore.), a firm oil tax opponent.

“The ground has shifted,” said a top staff member on the House Ways and Means Committee. “Whenever the proposal came up before, we could always count on throwing Tip into the breach. That’s not possible anymore.”

Over the last two years, a tax on imported oil of up to $10 per barrel has been championed periodically as the solution to a host of knotty problems, from meeting Gramm-Rudman deficit reduction targets or plugging holes in various tax revision plans to preventing the collapse of certain Southwestern banks with large portfolios of sour energy loans. Advocates repeatedly emphasized the danger of over-reliance on imported oil, arguing that a strong domestic energy industry is essential to national security.

But without Reagan’s firm backing, advocates candidly acknowledge, the proposal still has little chance of getting off the ground.

Got to Have a Fee

“If you want to keep a domestic energy industry, you’ve got to have an oil-import fee,” said Sen. J. Bennett Johnston (D-La.), who will become head of the Senate Energy Committee next year. “But whether it is politically possible depends upon . . . the cooperation of the President.”

And Bentsen, in a speech Friday, advocated an oil-import tax to boost domestic production but added: “I don’t think it’s going to pass. I don’t think a serious attempt will be made unless the President changes his mind.”

Inside the Administration, advisers are sharply divided over the issue. Vice President George Bush and Energy Secretary John S. Herrington have publicly backed the domestic oil industry in the past, and Interior Secretary Donald P. Hodel has hinted at the importance of protecting domestic producers on national security grounds. But White House Chief of Staff Donald T. Regan and Treasury Secretary Baker remain convinced that the market should be left alone.

Paradoxically, those with the closest ties to the domestic oil and gas industry are the most limited in their ability to press the cause.

“It’s an ironic situation,” a White House official said. “Bush is probably the industry’s biggest booster, but he was so burned by the Saudi thing that he can’t get out front again.”

Last April, when Bush traveled to the Middle East, he was widely criticized for publicly advocating that Saudi Arabia should “stabilize” oil prices to help ease the pain for U.S. oil producers. As a co-founder of a successful Houston-based oil drilling firm in the early 1950s, Bush found himself under attack for seemingly putting the parochial interests of the industry ahead of the broader Administration position against intervening in the oil market.

Two months earlier, Reagan had briefly opened the door to an oil-import tax by suggesting that he might consider it in response to the collapse of world oil prices. But only a few weeks later, he firmly withdrew that tentative support, saying he was convinced that the fee “would have a bad effect on the economy.”

Even if Reagan were to reverse his opposition to an oil-import fee, it still would face several potentially deadly political flaws. Fierce objections from the import-dependent Northeast and screams of pain from oil exporter Mexico over the effect of such a tax on its battered economy would be likely to open the door to a host of exceptions that would undermine the goals of the tax.

Complex Issued

“It is a very, very complex issue, and I don’t think Congress is capable of agreeing on a plan that would ultimately work to the industry’s benefit,” said a legislative aide to Sen. Malcolm Wallop (R-Wyo.), an important industry backer on the Finance Committee. “Once they started making exceptions, the whole thing would fall apart.”

Probably the most the industry can expect from Reagan is another effort to press for repeal of the windfall profits tax and deregulation of natural gas prices, but such efforts have been futile in the past.

Repeal of the windfall profits tax would have little practical effect because the tax is producing little revenue for the government and is scheduled to be phased out by 1991. But it would ease a bookkeeping burden on many independent oil producers.

Administration officials acknowledge that they are studying the proposals for an oil-import fee as part of a broad interagency review of the implications of the collapse in oil prices on the domestic industry. But the study, under the supervision of Deputy Energy Secretary William F. Martin, is not expected to recommend any such change in policy, energy officials say.

Although Reagan reluctantly signed the Superfund bill, with its small energy and business excise tax to finance cleaning up toxic waste dumps, Administration insiders insist that he remains deeply opposed to any substantive tax hike.

“We’ve gone over and over this issue of an oil-import tax and the more carefully you look at it, the more reasons you find to reject it,” said Roger J. Mentz, assistant Treasury secretary for tax policy. “I’m simply not aware of anything that would cause the President to change his mind.”