If Not an Energy Tax, What Instead?
AN energy tax to raise revenue is an excellent means of reducing the budget gap while encouraging energy efficiency, addressing environmental problems, and improving our energy security.
President Clinton set his revenue target at between $20 billion and $30 billion a year (depending on how the calculation is made), taxing oil at twice the rate of other sources. Given the risks of importing oil and the problems of using it for transportation, this differential is defensible.
In all, this tax would raise the energy bill by between 5 percent and 7 percent, depending on how much energy users improve their efficiency in response to price changes. Compared to the oil-price increases exacted by OPEC in the 1970s and early 1980s, or the energy tax proposed recently by the European Common Market, the administration's goal is modest.
The energy efficiency that results reduces emissions of carbon dioxide (C02) from burning fossil fuels and heavy reliance on oil imports.
A broad-based energy tax is far less regressive than just taxing gasoline or household fuels, because this tax reaches the 65 percent of United States energy used to make goods and services. The largest part of the tax is raised from businesses, which pass these costs on to consumers and improve their own energy efficiency to reduce the costs.
How many know that the equivalent of four gallons of oil are used to make one gallon of maple syrup, the most energy-guzzling product at the supermarket? While the energy tax is slightly regressive, so is nearly any way of raising revenue - or making large budget cuts.
Will higher energy prices hurt the US economy? Industries that consume the most energy (steel, cement, chemicals, paper) actually produce a small share of output with an even smaller share of employment, and have enormous potential to save energy by adopting new technologies.
Energy taxes are the rule in Europe. To minimize trade impacts, governments tax household fuels more than industrial energy, but few users escape the tax man, the gasoline and road diesel are hit heavily. Taxing energy used directly by consumers more than energy used by industry is politically difficult in the US. This is unfortunate because the scope for improving energy efficiency of cars and appliances or fixing homes and commercial buildings to save energy is much greater over the long run than that of industry.
THESE taxes should not affect America's trade status significantly. On balance, US industry paid less for energy than Europe, though it is less energy-efficient. The Japanese paid the most, suggesting that cheap energy is not a vital ingredient to industrial success. At the same time, US industry still needs more energy, product for product, than industries in Europe or Japan. It is time we closed that energy productivity gap.
International comparison of the two-thirds of US energy not used directly for international trade is revealing. Americans, in their over-lit and over-cooled buildings, use more energy per square foot than the Japanese and Europeans. And US water heating and appliances are less efficient than theirs. Americans use one-third more fuel per mile of car travel than Europeans. Americans also drive about twice as many miles per person and use significantly less mass transit.
Squeezing this energy fat from the US economy will offset most of the increase in the price of energy and reduce pollution, including C02. Behind these differences lie higher energy prices traditionally paid by the Japanese and Europeans.
Both Presidents Ford and Carter proposed energy taxes and failed. President Reagan backed down when his 1986 "Energy Security Study" recommended either a gasoline tax or an oil import fee.
The "environmental president," George Bush, fought the CO2 tax even as parliaments in Europe were embracing it. Yet the Swedes and Germans boosted their gasoline taxes to raise revenue and help the environment.
Swedish tax increases alone over the last three years were larger than the price Americans pay for gasoline. It is ironic that the world's alleged free market leader always backs down from using market forces.
Mr. Clinton, by contrast, has fused his own concern for the environment with a near-universal concern for reducing the deficit. With only diehard lip-readers holding out against "no new taxes," the question is really "If not an energy tax, what instead?"