VIEWPOINTS : A LEVY ON OIL: THE PROS AND CONS OF AN IMPORT TAX : It Would Reduce Economic Growth and Increase Inflation

The 100th Congress, when it convenes in January, is certain to face renewed proposals for an oil-import tax. Such a tax, we are told, would be a painless source of billions of dollars to reduce the federal deficit and would prevent the American people and American industry from getting “hooked” again on low oil prices.

In truth, however, an import fee would not be painless. It would reduce economic growth, place American industry at a competitive disadvantage in world trade, increase inflation and cost hundreds of thousands of jobs. And if action is needed to encourage energy conservation, there are much better and fairer ways to do it.

The basic fact about an oil-import tax is that it is paid by American industry and American consumers. While the rest of the industrial world enjoys the benefits of low world oil prices, an oil-import fee would boost prices artificially in the United States.

The result would be higher relative costs for American-made products, at a time when we are incurring the largest trade deficits in our history.

Oil, we should remember, is not only the source of such consumer products as gasoline and heating oil, it is one of the principal resources used by manufacturing industries.

Nationally, oil is the source of 40% of all energy used in the United States. For this reason, boosting the price of oil with an import tax has strong economic consequences.

A study conducted by economists for the Federal Reserve Bank of Dallas concluded that, even with a decline in world oil prices, a $5-a-barrel oil-import tax would have these results: 400,000 fewer jobs and an immediate acceleration of inflation, with the wholesale price index for fuels jumping 12%.

That is the price we would pay as a nation to get about $8.5 billion a year in import tax revenue to help reduce a federal budget deficit of more than $160 billion.

An oil-import tax would also be grossly unfair to those sections of our country that are most heavily dependent on oil as a source of energy.

For example, the New England states-- without access to cheaper hydroelectricity, natural gas or coal--depend on oil for about 65% of all energy, compared to the 40% national average. Boosting the price of oil thus would impose a much greater penalty on these states--and on the Northeast generally--than on the country as a whole.

Restoring Prosperity

It is argued that an oil-import tax is needed to help restore prosperity to our domestic oil industry.

We must recognize, however, that for every job restored to the oil industry, a job may be lost in U.S. industries that consume oil--and that includes our chemical, paper, agriculture, rubber and plastics industries, among others.

Just as an oil-import tax would create inequities within our country, so it would create problems with some of our foreign allies.

An oil-import fee would be a barrier not only to oil imports from unreliable oil-producing countries in the Middle East, but also to imports from reliable suppliers and close allies, including Venezuela, Mexico and Canada.

Proponents of an oil-import tax suggest that the inequities within our country could be remedied by a rebate to some users of oil products, and we could take care of our allies’ problems by exempting their oil from the tax.

That, to me, is a prescription for a complex, bureaucratic regulatory mechanism that we can do without.

If we reject an oil-import tax, then how do we promote energy conservation and protect ourselves against “oil blackmail?” There are alternatives, including an increased federal gasoline tax, that are fairer, simpler and less damaging to our economy.

As a tax on imports, an oil-import fee would be protectionist legislation.

In his State of the Union address last January, President Reagan argued eloquently against such legislation, saying he would “oppose legislation touted as providing protection that in reality pits one American worker against another, one industry against another, one community against another, and that raises prices for us all.”

That, I think is a perfect description of the impact of an oil-import tax on our nation. It would be divisive, reduce economic growth, increase inflation, and raise prices for all of us.