3. Taxing all energy consumption rather than only selected energy products results in a larger tax base; thus a given amount of revenue can be raised, without disproportionate regional burdens, at a lower rate of tax.

Arguments against the proposals

1. Any broad-base tax on energy consumption would increase the cost of domestic manufacturers and decrease their ability to compete with foreign manufacturers in the domestic and world markets. Statutory devices to relieve exports from the impact of the tax would be difficult to administer.

2. Energy taxes (like many consumption-based taxes) are regressive, affecting low-income households relatively more severely than high-income households.

3. There would be high administrative and compliance costs associated with the establishment of a broad-base energy tax which would be difficult to justify unless the tax were designed to raise substantial revenue. In addition, the complexity of such a tax would necessitate a delayed effective date.

4. If domestic energy products are taxed at the same rate as imports, there would be no incentive for increased domestic energy production.

b. Broad-based petroleum tax

Present Law

Superfund taxes of 8.2 cents per barrel for domestic crude oil and 11.7 cents per barrel for imported petroleum products are 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.

Domestic crude oil subject to tax includes crude oil condensate and natural gasoline, but not other natural gas liquids. Taxable crude oil does not include oil used for extraction purposes on the premises from which it was produced, or synthetic petroleum (e.g., shale oil, liquids from coal, tar sands, biomass), or refined oil.

Petroleum products which are subject to tax upon import include crude oil, crude oil condensate, natural and refined gasoline, refined and residual oil, and any other hydrocarbon product derived from crude oil or natural gasoline which enters the United States in liquid form.

The petroleum tax generally expires on December 31, 1991. The tax would terminate earlier than that date if cumulative Superfund receipts during the reauthorization period equal or exceed $6.65 billion, and under certain other conditions.

Possible Proposal

The Superfund taxes on domestic and imported crude oil and petroleum products could be increased, with receipts from the increased tax being deposited in general revenues.

Arguments for the proposal

Pros and Cons

1. A tax on domestic and imported petroleum could be accomplished by increasing the existing Superfund petroleum tax; thus start-up and administrative costs would be relatively low compared to a new broad-base energy tax (such as the BTU or ad valorem energy taxes described above).

2. A tax on domestic and imported petroleum would encourage conservation and thus reduce petroleum imports and import dependence.

Arguments against the proposal

1. A tax on petroleum would increase the costs of domestic manufacturers and decrease their ability to compete against foreign producers in both the domestic and world markets. Statutory devices to relieve exports from the impact of the tax would be difficult to administer.

2. A tax on petroleum would favor natural gas, coal, and nonfossil fuel energy sources over petroleum, with no incentive for increased domestic oil production.

3. A tax on crude oil would raise the price of all petroleum products. For example, a $1 per barrel import fee would raise the price of gasoline by approximately 2.3 cents per gallon.

4. A tax on petroleum would impose a larger burden on lowincome households relative to high-income households, since lowincome households spend a larger portion of their disposable income on petroleum products.

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.

Petroleum products which are subject to tax upon import include crude oil, crude oil condensate, natural and refined gasoline, refined and residual oil, and any other hydrocarbon product derived from crude oil or natural gasoline which enters the United States in liquid form.

The petroleum tax generally expires on December 31, 1991. The tax would terminate earlier than that date if cumulative Superfund receipts during the reauthorization period equal or exceed $6.65 billion, and under certain other conditions.

Canada, Mexico, and the European Community filed a formal complaint under the General Agreement on Tariffs and Trade ("GATT") after the Superfund tax on imported oil was raised above that on domestic oil in the Superfund Reauthorization Act of 1986. A GATT panel convened to investigate the complaint concluded that the differential petroleum tax rate is contrary to the GATT, and the panel ruling was accepted unanimously by the GATT Council on June 17, 1987. Under GATT rules, the United States either must amend the Superfund tax or compensate the plaintiffs to avoid possible retaliatory tariffs.

Tariff on imported petroleum

Tariffs are imposed on various categories of articles that are imported into the customs territory of the United States (including the 50 states, the District of Columbia, and Puerto Rico). The tariffs generally are imposed at a uniform rate on imports from most noncommunist countries, with separate, higher rates imposed on imports from certain communist nations. Preferential treatment applies to certain imports from developing countries, specified Caribbean basin nations, and Israel. Imports from U.S. insular possessions, where the imported product is not comprised primarily of foreign materials, may be made duty-free. Tariffs are imposed pursuant to the Tariff Act of 1930 (19 U.S.C. sec. 1202 et seq.), and generally are subject to GATT limitations.

At present, 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 de

grees A.P.I. or more), the tariff is 0.25 cent per gallon.7 (Imports from certain communist countries are subject to a 0.5-cent-pergallon 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.

Import fee authority

Under the Trade Expansion Act of 1962, the President can impose oil import fees or import quotas if he finds that imports threaten the nation's security. Congress may roll back such fees by passing a joint resolution of disapproval; however, this resolution can be vetoed by the President, in which case the fees he imposed would continue in effect unless the President's veto is overridden by a two-thirds vote of both Houses of Congress. These procedures for Congressional vetoes and overrides were specified by the Crude Oil Windfall Profit Tax Act of 1980 (P.L. 96-223).

Under an exemption from the General Agreement on Tariffs and Trade (GATT), a tariff imposed on national security grounds is not a violation of trade agreements. Consequently, enactment of a tariff on imported petroleum for legitimate national security reasons would not result in the imposition of GATT-authorized countervailing duties or other trade penalties.

The presidential import fee authority was used, to various extents, by Presidents Nixon, Ford, and Carter. President Nixon imposed import license fees of 21 cents per barrel for crude oil and 63 cents on refined products in 1973 (this differential was intended to encourage domestic refining). President Ford imposed an additional $2-per-barrel crude oil import fee in 1975, but lifted the fee early in 1976. President Carter raised the possibility of an import fee in 1977 and again in 1979, in response to which Congress adopted the veto and override provisions contained in the Crude Oil Windfall Profit Tax Act. (Both the Ford import fee and the original Carter proposal were intended to encourage action on broader energy proposals.) President Carter actually imposed a $4.62 per barrel import fee in 1980, with allocation rules that effectively converted the fee into a 10-cents-per-gallon gasoline_tax. However, a resolution of disapproval was passed by the Congress, and President Carter's veto of that resolution was overridden.

Possible Proposals

Increcse petroleum tariff rates

The existing tariffs on imported crude oil and petroleum products could be increased. Alternatively, the Superfund tax on imported petroleum products could be increased with the additional

7 Degrees API equals 141.5 divided by specific gravity, less 131.5.