THE Clinton administration deserves support for taking action to reduce the deficit. However, its deficit package is far from perfect. It includes a broad-based energy tax that will harm the economy - and won't much help conservation, the environment, or energy security. If more taxes are needed, a value added tax on a wide range of products makes much more sense. The economy and deficit
In 1997, with the energy tax fully in place, Americans will pay almost $33 billion in new taxes. They will pay more for fuel to heat their homes, power their cars, and operate their businesses - and also more for goods and services made with energy.
The total tax will average about $475 a year for every four people, with some families spending considerably more. That much less will be available to spend on food, housing, medicine, education, and everything else. In turn, businesses will sell less and employ fewer people. And since foreign firms won't pay the tax, United States companies will find it tougher to compete, forcing further job cuts. The impact will be severe on such industries as airlines, trucking, agriculture, steel, aluminum, rubber, and glass.
A recent study by DRI-McGraw Hill shows that by 1998 - less than one year after the tax is fully implemented - about 400,000 jobs will be lost.
And with those people out of work, the government will receive less in income and payroll taxes and pay out more in unemployment benefits. The administration also plans to spend almost $4 billion on food stamps and earned income credits to ease the tax's pain on the poor.
As a result, just a little more than half of the $33 billion collected will actually be available to reduce the deficit. The administration currently says that reducing the deficit will lower interest rates, improving people's finances. But this will provide little comfort to those unemployed - especially since another tax could have cut the deficit without nearly the pain in lost jobs. Conservation
Laura D'Andrea Tyson, head of the administration's Council of Economic Advisors, says that the energy tax is primarily "a conservation measure" and "not ... a revenue-raiser." And it is through conservation that the administration hopes to significantly cut oil imports and improve the environment.
But the administration's own figures show that conservation will be minimal. Consider the tax's impact on the consumption of oil - where most conservation might be expected, with oil taxes at a discriminatory 2 1/3 times the rate of any other kind of energy. The tax, in fact, will barely slow growth in total oil consumption and oil imports which, by the year 2000, will be 2.2 million and 3.7 million barrels per day greater, respectively, than in 1992 - increases of 13 percent and 48 percent. Consumption won't even be 2 percent less than it would have been without a tax.
That amount of conservation also means little reduction in pollution - which, in any case, would be achieved at less cost under existing environmental programs. The US Environmental Protection Agency estimates that the tax will reduce no major pollutant more than 1 percent.
One more point: Many energy tax advocates believe that all conservation achieved by taxation is necessarily good. They say we waste energy, compared with the Europeans and the Japanese. But the fact is that the United States is different. Our country is vastly larger. We have to rely on our cars more, have larger houses which need more energy to light, heat, and cool, and have more industries that, by their nature, use more energy - industries such as steel, lumber, and agriculture.
As a result, imposing taxes to force Americans to use less energy won't just wring out waste. It will also result in less productive, competitive industries, less mobility, and smaller, less comfortable homes and cars. Additional taxes
If not an energy tax, then what? A better idea is a value added consumption tax (or VAT), levied on all goods and services - including energy - at low rates.
A VAT would hurt the economy less and could be made less regressive by exempting necessities like food and medical care. Unlike an energy tax, a VAT could easily be levied on imported goods and rebated on exports, thus keeping US companies on an even footing with foreign competitors. Unlike an energy tax, a VAT would not penalize industries, consumers, or regions that must use more energy than average. And a VAT would reach consumption by the "underground economy."
Japan and many European nations have VATs. None has a broad-based energy tax.
There is some talk in Washington that the president's economic package must be enacted as a whole - or it may not be enacted at all. This is a defeatist attitude. The package is far from perfect, as the energy tax shows. It can and should be improved.