Energy Tax Will Cost Too Much, Oil Council Says

In the first direct attack by a powerful interest group on President Clinton’s economic program, the American Petroleum Institute warned Monday that the proposed energy tax will be more expensive to consumers and damaging to industry than the White House has estimated.

Clinton promptly denied that was the case, saying the industry’s math “just doesn’t work out.”

Big Oil’s foray, designed in part to test the Administration’s defenses, may be the opening skirmish of a broader challenge by the influential lobbies that Clinton has characterized as the “defenders of decline.”

Oil executives insisted that they support the President’s general plan to reduce the deficit, and conceded that some taxes on industry may be necessary if spending cannot be cut deeply enough to meet Clinton’s goals. But it would be wrong to balance such a large portion of the tax burden on energy-intensive industries, they concluded.

The type of tax proposed by Clinton would cripple such businesses just as they are struggling to emerge from a recession, said Charles J. DiBona, president of the American Petroleum Institute.

DiBona argued that Administration economists underestimated the financial pain an energy tax would inflict on the American consumer. He said the Administration had estimated yearly cost increases for a typical family of $320 but argued that the true figure would be closer to $475.

But Clinton, when told in Seattle of the assertion that he had underestimated the energy tax’s burden on families, replied: “I thought we overestimated it, frankly.”

A Treasury Department spokesman said that if an energy tax becomes law, costs would increase by $17 a month for a family of four making between $30,000 and $50,000 a year.

Clinton said that the levy--which taxes conventional forms of energy based on their heat content as measured in British thermal units, or BTUs--would raise $22 billion in net revenue when fully phased in on July 1, 1996.

But, DiBona argued: “Simple arithmetic demonstrates that the estimate of revenue is far too low. Americans use about 6.2 billion barrels of oil annually, so a new tax of $3.47 a barrel would produce $21.5 billion in revenue, just from oil.”

The Administration countered that figures used by DiBona were based on a study by the American Petroleum Institute in 1991. It is based on different assumptions about the structure of an energy tax, a department spokesman said, and “is not really relevant.”

DiBona also argued that the Administration plan would cost the economy some 700,000 in lost jobs, and, as a result, lost income.

But Administration officials challenged that assumption as well. Economists had considered the likelihood that about one-quarter of the money raised would be offset by lost income and payroll tax money as the consumption tax takes its initial toll on industry.

Thus, although the Administration projects collecting $29.3 billion in gross revenue from the BTU tax, it planned to see a net revenue gain of only $22.1 billion.