Feinstein Seeks Break for State Oil Producers

Sen. Dianne Feinstein has warned the Clinton Administration that she may not support the President’s energy tax proposal unless the White House agrees to ease its burden on California oil producers.

In a letter to Treasury Secretary Lloyd Bentsen, the California Democrat said that the state’s heavy oil producers, concentrated in Kern County, would be devastated by the energy tax and implied that she wants the Administration to grant a specific exemption from the tax for the industry.

Feinstein’s appeal underscores the difficulty the Administration faces as it tries to keep its tax and budget package from unraveling. Responding to intense pressure from lobbyists and lawmakers, the Administration already has agreed to a number of exemptions and revisions that will lessen the impact of the energy tax on selected industries.

But with each new disclosure that another deal has been cut, other special interests have stepped forward seeking similar protection. The White House is reported to have agreed to grant a new exemption from the tax to the aluminum industry, which is a heavy consumer of electricity generated from hydroelectric power.

The aluminum producers had a powerful ally in House Speaker Thomas S. Foley (D-Wash.). Many of the aluminum producers are located in the Pacific Northwest, where they take advantage of cheap hydroelectric power.

One senior Administration official insisted Wednesday that the White House is not yet overly concerned about the effect of the deal-making on the energy tax. The White House has calculated how much it is willing to compromise on the levy--and apparently has not yet reached the point where it would find further changes unacceptable.

“We had a discussion on the lines we would not cross and we haven’t gotten there yet,” said the official. “But if you get too many exemptions and distortions, then you could undermine it.”

But the apparent willingness of the Administration to compromise has accelerated the pressure from special interests on the tax package. Feinstein said in an interview Wednesday that she decided to push for help for California’s heavy oil industry after seeing the Administration cutting special deals with other groups. And she complained that she may now vote against the energy tax when it reaches the Senate in any event because it has become so riddled with loopholes.

“I have real concerns about the tax as it now stands,” said Feinstein. “I’ve watched in dismay as they have given exemptions for rural areas, for ethanol and now for aluminum. The question is no longer whether this is a fair tax. I’m coming down on the side of believing that California can be hurt by an energy tax and I’m going to look out for what’s best for California.”

In her letter to Bentsen, Feinstein said that heavy oil, which accounts for 70% of California’s oil production, would face an unfair burden from Clinton’s energy tax because of the price differential between heavy and light crude oils.

The energy tax, as structured by the Administration, would equal 30% of heavy crude’s market value, compared to 18% for the more expensive West Texas light crude oil. She said that the new tax would cost as many as 17,000 jobs in Kern County.

“I would like to support the President and his economic plan but it would be difficult for me to support a plan which would have such a large adverse impact on one county in California,” Feinstein’s letter stated. “The potential job loss in Kern County is simply too severe.”

Feinstein’s comments come as a growing list of congressional Democrats seem poised to join Republicans to defeat the energy tax.

The tax, which would raise about $70 billion over five years, has become so controversial because it would have the biggest impact on the middle class of any of Clinton’s tax proposals. His decision to seek a broad-based energy tax also contradicts his campaign pledge not to impose higher taxes on middle-class Americans to pay for his economic plan.

On Wednesday, congressional sources said that Democrats on the House Ways and Means Committee had reached agreement on competing demands for relief from the proposed energy tax. The panel was expected to vote today on a tax bill, which would include the energy measure.

The energy tax seems likely to be approved in the House but is expected to face fierce opposition in the Senate, where rural and energy-producing states have more clout.

Influential business groups, including the U.S. Chamber of Commerce, also have begun to work to defeat the measure.

Initially, the Chamber and other business organizations had flirted with the idea of supporting Clinton’s program to achieve deficit reduction. But now, representatives of those groups said, they believe that Clinton’s plan is too reliant on tax increases and does not include sufficient spending cuts to reduce the deficit.