NEWS ANALYSIS : Energy Tax Hits Consumer More Than Oil Firms

When President Clinton took to the radio waves last weekend to attack the critics of his energy tax, he argued that his foes--including members of his own party--were tools of the “big oil lobby.”

Seeking to regain his populist footing, Clinton complained that oil producers were “trying to wiggle out of their contribution to deficit reduction” by seeking to strip the energy tax from his budget plan.

But a close look at the proposed energy tax--now at the center of the congressional debate over Clinton’s program--shows that it was not designed by the Administration to soak Big Oil, but to hit consumers.

Without doubt, Big Oil wants to kill the tax. After all, if Americans pay higher taxes on energy, then they will eventually consume less, and that would mean less demand for the oil, gasoline and other products that the industry sells. “This tax is very threatening to the supply side of the energy industry, because you will see less consumption,” says Jim Wolf, executive director of the Alliance to Save Energy.

Yet spreading opposition to the tax in Congress demonstrates not only the skills of a handful of oil lobbyists, but also the realization by moderate Democrats that the energy levy packs the single biggest wallop on the middle class of any of Clinton’s tax proposals.

Congress estimates that the tax will raise $71.5 billion over five years, and even the Administration’s own conservative projections show that it will add more than $200 a year to the tax bills of a family earning $40,000 annually.

As a result, anxious lawmakers know that the energy tax more than any other element of Clinton’s program represents a repudiation of the President’s campaign promise not to raise taxes on the middle class to pay for his agenda.

Given that background, centrist Democrats from Midwestern states and other areas with little interest in the oil industry have joined with oil state legislators to form a coalition against the provision.

Clinton Administration officials always knew the energy tax, also known as the BTU tax, would be the most difficult sell of their economic package. Privately, officials concede that one reason they chose an energy tax was that it was less visible, and less understandable, to the average consumer.

“One of my colleagues said that he is trying to convince people that it is a tax on the British,” quipped Sen. John B. Breaux (D-La.), a key moderate on the tax-writing Senate Finance Committee, where the energy tax will face its greatest legislative challenge. BTU stands for British thermal unit, which measures the energy content of various fuels.

But now, congressional critics say, voters have figured the tax out, especially since Clinton agreed under congressional pressure to allow utilities to automatically include the federal energy tax as a line on home heating bills. To avoid such high visibility for the tax, the Administration had originally proposed that utilities would have to win approval from state regulatory agencies before they could include the tax on consumers’ bills.

“The problem many people have with it is political,” Breaux said. “I think the original idea was most people wouldn’t know what a BTU tax was, so you could get it passed.

“Everybody knows what a gas tax is; you can see it. But when people start realizing that a BTU tax is a gas tax, and when they realize that they are going to see it on their utility bill every month, and when they realize they are going to see it in everything they buy, I would suggest that it’s not the best way to go.”

Now that voters think of the tax in those terms, the Administration is finding that its populist attacks on its opponents ring hollow--much as Clinton’s gibes at Republicans over the Administration’s economic stimulus package earlier this year failed to garner much grass-roots support for the program.

Instead, many voters believed that the stimulus was pork; now many believe the energy tax will not result in real deficit reduction.

The Administration “didn’t listen to us with the stimulus package--they said take no prisoners, no compromise and they went right down to the final cup of Kool-Aid,” said Sen. J. Bennett Johnston, (D-La.), chairman of the Senate Energy and Commerce Committee and a leading opponent of the energy tax.

House Minority Whip Newt Gingrich (R-Ga.) said Wednesday that moderate Democrats rebelling against their President are “responding to people back home who are calling them and saying: ‘Don’t raise the tax on energy; don’t raise the tax on driving to work; don’t raise the tax on heating and air conditioning; don’t raise the tax on agriculture.’ This is a grass-roots, back-home effort by real people.”

What’s worse for the Administration, the White House itself has been in the vanguard of wheeling and dealing with industry lobbyists on the energy tax since February, offering a costly series of exemptions and other changes to gain critical support.

Those deals became so pervasive that the basic tax rate on consumers had to be raised in the tax-writing House Ways and Means Committee to make up for the lost revenues. For example, the Administration’s original proposal would have raised the gasoline tax at the pump by 7.5 cents a gallon by 1996; now the tax increase will peak at 7.6 cents.

The Administration had all but invited lobbyists to seek further exemptions and other changes in April, when Treasury Secretary Lloyd Bentsen said that the energy tax was being structured to ensure that it ultimately would be borne by the consumer, rather than the energy producer.

But Bentsen’s willingness to deal on the energy tax led to more and more dealing in the House and Senate; now even House Speaker Thomas S. Foley (D-Wash.), who must lead the fight for the tax today in the House, has won a special exemption for aluminum producers who use hydroelectric power in the Pacific Northwest.

Other exemptions were given for ethanol and for fuels used to power farm equipment, although farmers were denied other exemptions they sought.

Times staff writer Karen Tumulty contributed to this story.