Why Congress now warms to gas tax

Amid the uncertainties of economic signs and portents - and the legislative scramble shaping up in Congress - some elements of the US economic picture emerge clearly.

A gasoline tax there surely will be - probably five cents a gallon - with the battered roads and highways.

The new levy, which will boost the federal gasoline tax to nine cents a gallon, became certain when the key people involved - President Reagan, House Speaker Thomas P. O'Neill Jr. of Massachusetts, and Senate majority leader Howard H. Baker Jr. of Tennessee - all supported it.

Mr. Reagan calls it a ''user fee'' to finance a highway program. Speaker O'Neill stresses the estimated 320,000 jobs which the roadwork promises to create.

Whatever the rhetoric, the gasoline tax - once an anathema on Capitol Hill - now attracts politicians on both sides of the aisle. Jobs will result, roads and bridges will benefit, and above all the program will not add to the budget deficit.

Two factors - the growing deficit and high unemployment - have changed legislators' thinking about the utility of a higher tax on gasoline.

The jobless rate, now 10.4 percent of the work force, may climb higher in the last months of this year, and many experts say it is likely to remain stuck at 9 to 10 percent for much of 1983.

This kind of unemployment, the highest since 1940, cries out for the creation of new jobs. But the traditional method - priming the economic pump with government spending on public works - would add billions of dollars to budgetary red ink.

Fiscal 1982 ended Sept. 30 with a shortfall of $110.7 billion, nearly twice the size of the previous highest deficit, $66.5 billion in fiscal 1976. But that is only the beginning.

White House officials agree with congressional experts that the shortfall for the current fiscal year, which began Oct. 1, will be at least $150 billion and probably more. As for fiscal 1984, budget director David A. Stockman says the deficit will be between $185 billion and $195 billion unless spending is cut and/or taxes raised.

Under current fiscal provisions, in other words, the budget deficit will keep on growing. That prospect frightens politicians and disturbs bankers and other lenders, who warn of dire consequences from uncontrolled budget deficits.

Either the Federal Reserve Board would be forced to monetize the debt - that is, relax credit to inject more money into the economy - or private borrowers would be crowded out of the market by the huge borrowing needs of the US Treasury.

Monetizing the debt implies a resurgence of inflation, especially when the economy picks up steam. Right now, it is true, the Fed is easing up on the credit reins, trying to lower interest rates enough to get recovery started.

Doesn't this threaten to reignite inflation? Most experts, including Fed chairman Paul A. Volcker, think the risk is small.

With factories running at only 68 percent capacity and with nearly 12 million workers idled, the economy contains a lot of slack to be taken up before inflationary pressures would build.

But Mr. Volcker warns that monetary relaxation by the Fed will be tolerable only if Congress and the White House take joint action to curb those yawning budget deficits.

That is where the sparks will fly, not so much during the lame-duck session of Congress as during the early part of 1983, when the new batch of legislators settles into town.

Democrats, in an opening skirmish, may push for a jobs bill over and above the gasoline tax hike. But their bill would be financed in part by a major cut in the defense budget, certain to be opposed by President Reagan and many members of Congress.

To the extent that a jobs bill is not financed by spending cuts or tax hikes, it would add to the budget deficit.

A fiery debate is likely to arise in 1983 over how to shrink government spending and whether or not to boost taxes. Preliminary signals from the White House foreshadow another administration effort to whittle away at nondefense programs, which took the brunt of cuts in 1982 and 1983 budgets.

The President will meet opposition on this score, not only from Democrats, but from leading Republicans. ''It is time,'' says Sen. Robert Dole (R) of Kansas, chairman of the Senate finance committee, ''to give social programs a rest.''

A meaningful reduction of the deficit, analysts agree, can be achieved only if cuts are made in the growth rate of outlays for defense, social security, and medicare. These programs, together with interest on the national debt, absorb 65 percent of the budget.

For millions of Americans, social security and medicare form the bedrock of financial underpinning that keeps them off welfare. Against that backdrop the new Congress and President Reagan will enter the arena of budget debate.

of 5 stories this month > Get unlimited stories
You've read 5 of 5 free stories

Only $1 for your first month.

Get unlimited Monitor journalism.