b. Tax on ozone depleting chemicals Present Law Chemicals which deplete the ozone layer are not subject to tax under present law. Possible Proposal An excise tax could be imposed on the sale or use by the manufacturer of ozone depleting chemicals and on the import of such chemicals, or products containing such chemicals. Ozone depleting chemicals include chlorofluorocarbons ("CFCs") which are used as refrigerants, foam blowing agents, and solvents; methyl chloroform; carbon tetrachloride; and halon. The tax rate per pound could vary according to the ozone depleting potential of the chemical. Pros and Cons Arguments in favor of the proposal 1. A tax on ozone depleting chemicals would reduce their production and use in the United States. 2. U.S. chemical companies would have an incentive to develop substitute chemicals that do not deplete the ozone layer. To the extent that substitutes are developed, U.S. chemical companies may be able to increase domestic market share relative to imports. Arguments against the proposal 1. Unless exports are exempt from tax, domestic manufacturers of ozone depleting chemicals would be placed at a competitive disadvantage in the world market relative to foreign producers. 2. There is scientific controversy over the extent to which CFCs and other chemicals contribute to the depletion of the ozone layer. Also the amount of ozone depletion caused by any particular chemical may vary according to its use by the purchaser. 3. Taxation of imported products containing ozone depleting chemicals would be complex to administer. (51) 7. Energy Consumption Taxes a. Broad-based energy tax Present Law Under present law, a variety of excise taxes and tariffs are imposed on the sale, use, or importation of chemical and mineral fuels. These include: the Highway, Aquatic Resources, Airport and Airway, Inland Waterway, and Leaking Underground Storage Tank Trust Fund taxes on gasoline, diesel fuel, and other motor fuels; the Superfund taxes on petroleum and certain chemical feedstocks; the Black Lung Disability Trust Fund tax on coal; and the tariff on imported crude petroleum and certain petroleum products. Motor fuels taxes Excise taxes are imposed on gasoline and special motor fuels (9) cents per gallon), diesel fuel (15 cents per gallon), aviation gasoline (12 cents per gallon), aviation jet fuel (14 cents per gallon), and fuel used by inland waterway vessels (10 cents per gallon). Revenues from these taxes are dedicated respectively to the Highway (Aquatic Resources for motorboat fuels), Airport and Airway, and Inland Waterway Trust Funds. An additional 0.1-cent-per-gallon tax is imposed on these fuels to finance the Leaking Underground Storage Tank Trust Fund. The highway and motorboat taxes are scheduled to expire after September 30, 1993; the aviation taxes are each scheduled to expire after December 31, 1987; the inland waterways tax is scheduled to phase up from 10 cents to 20 cents per gallon over the period 1990-1995; and the leaking underground storage tank tax expires on December 31, 1991, or earlier if $500 million of revenue is collected. Superfund taxes Receipts from a petroleum tax, a tax on chemical feedstocks, and a tax on certain imported substances derived from taxable feedstocks (effective January 1, 1989) are deposited into the Hazardous Substance Superfund to pay for the cleanup of hazardous waste sites. Petroleum tax A tax of 8.2 cents per barrel of domestic crude oil and 11.7 cents per barrel of imported petroleum products is imposed on the receipt of crude oil at a U.S. refinery, the import of petroleum products and, if the tax has not already been paid, on the use or export of domestically produced oil. The petroleum tax expires on December 31, 1991, or earlier if the Superfund unobligated balance ex ceeds a certain level or total Superfund revenues exceed a certain amount. Tax on feedstock chemicals A tax on feedstock chemicals applies to the sale or use of 42 specified organic and inorganic chemicals ("feedstock chemicals") by the manufacturer, producer, or importer. The tax rates range from 22 cents to $4.87 per ton. (A special rate applies to xylene to compensate for refunds of tax previously paid with respect to xylene.) Exports of taxable chemicals and certain taxable substances made from taxable chemicals are exempt from tax. Other exemptions include taxable chemicals used to make animal feed, fertilizer, and motor fuel. The tax on feedstock chemicals expires on December 31, 1991, or earlier, under the same circumstances as the tax on petroleum. Tax on certain imported substances Certain substances derived from taxable chemical feedstocks are subject to tax, when sold or used by the importer, according to their taxable chemical content. If the importer does not furnish sufficient information to determine the taxable chemical content, a 5-percent tax is imposed on the customs value of the imported substance. The tax on imported substances is effective January 1, 1989, and terminates at the same time as the tax on chemical feedstocks. Coal tax The black lung excise tax on coal is $1.10 per ton in the case of coal from underground mines and 55 cents per ton in the case of coal from surface mines, or if less, 4.4 percent of the price. for which the coal is sold. Receipts from this tax are placed in the Black Lung Disability Trust Fund to pay benefits to miners who suffer from pneumoconiosis or their survivors. On January 1, 1996, or earlier under certain circumstances, the tax rates are scheduled to return to the pre-1982 rates (i.e., 50 cents per ton for underground mines and 25 cents per ton for surface mines, limited to 2 percent of price). Tariff on imported petroleum A tariff of 0.125 cent per gallon is imposed on crude petroleum, topped crude petroleum, shale oil, and distillate and residual fuel oils derived from petroleum, with low density (under 25 degrees A.P.I.). For substances with higher densities (testing 25 degrees A.P.I. or more), the tariff is 0.25 cent per gallon. (Imports from certain communist countries are subject to a 0.5-cent-per-gallon tariff, regardless of density.) A 1.25-cents-per-gallon tariff (2.5 cents, for certain communist countries) also is imposed on certain motor fuels and a 0.25-cent-per-gallon tariff (0.5 cent, for certain communist countries) is imposed on petroleum-derived kerosene and naphthas (except motor fuels). Natural gas, together with methane, ethane, propane, butane, and mixtures thereof may be imported tariff-free. Certain Canadian petroleum also may be admitted tariff-free, subject to an exchange agreement allowing like treatment for an equivalent amount of U.S. petroleum imported into Canada. BTU tax Possible Proposals A tax could be imposed on domestic energy consumption equal to a fixed amount per BTU.6 Renewable energy sources like solar and wind energy and synthetic fuels could be exempted. If the tax is limited to U.S. energy consumption, fuel imports would be subject to tax and fuel exports would be exempt. Ad valorem energy tax A second broad-base energy tax option would be to impose a tax on domestic energy consumption according to fuel value. Under this alternative, the stage at which the tax is imposed is important since value is added to fuels through the refining, processing, transportation, and marketing levels. The closer to the wellhead, mine mouth, or power plant a particular ad valorem tax is imposed on an energy product, the lower will be the receipt from a tax imposed at a particular rate on any product. Utilities could be allowed a credit for tax paid on fuels used to generate electricity to avoid double taxation. A variant would be to impose a fixed-rate tax on different fuels (e.g., so much per barrel, cubic foot, ton, or kilowatt-hour) designed to approximate an ad valorem tax. These tax rates could be adjusted annually based on fuel price indices. To reduce the number of taxpayers, the tax could be imposed at the refinery level in the case of petroleum, at the city gate in the case of natural gas, at the mine mouth in the case of coal, and at the utility company level in the case of electricity. If the tax is limited to U.S. energy consumption, fuel imports would be subject to tax and fuel exports would be exempt. Pros and Cons Arguments for the proposals 1. Energy consumption has various costs which are not reflected in energy prices and thus are not taken into account by consumers in making decisions about energy consumption. These costs include higher prices which must be paid to foreign producers, decreased national security associated with high oil import levels, and pollution of the environment. Energy consumption taxes would increase prices to reflect these costs, and thus would reduce these costs as consumption of energy declined. 2. In many applications, one fuel may be substituted for another, such as natural gas for oil to fire a boiler. Thus, increasing excise taxes on only one fuel type may cause energy users to switch to other fuel sources. By contrast, a broad-base Btu or ad valorem energy tax would be relatively neutral with respect to fuel choice, and could not be avoided by fuel switching. 6 A BTU, or British thermal unit, is a measure of energy content. One BTU is the amount of energy needed to raise the temperature of one pound of water by one degree Farenheit. One million BTUs are contained in 975 cubic feet of natural gas, 7.2 gallons of crude oil, 80 pounds of coal, or 293 kilowatt-hours of electricity. 74-267 0 - 87 - 3 |