revenue allocated to the general fund of the Treasury. Exemptions could be allowed for petroleum used in agriculture, in the manufacture of exports, and as home heating oil. Imported petroleum products could be taxed at a higher rate than imported crude oil. Impose a floor price on imported petroleum An excise tax or tariff could be imposed on imported petroleum equal to the excess of a specified floor price over an index of the world market price of crude oil. The effect of such a variable import fee would be to prevent the domestic price of crude oil from falling below the floor price. Tax domestic and imported petroleum with a production credit for domestic producers The Superfund tax on domestic crude oil and imported petroleum products could be increased by $5 per barrel, with the proceeds deposited in the general fund of the Treasury. The burden on domestic producers could be offset in part by a credit equal to the excess of $20 over the world market price of oil, up to $5 per barrel. This option is equivalent to a $5 per barrel import fee when the world oil price is less than $15 per barrel, and is equivalent to a $5 tax on both domestic and imported petroleum when the world oil price exceeds $20 per barrel. Pros and Cons Arguments for the proposals 1. A petroleum import fee would protect domestic oil producers from the decline in world oil prices which has occurred over the last two years. 2. Higher oil prices would encourage conservation and domestic exploration and production, and would discourage imports and abandonment of marginal wells. Reduced import dependence would improve the security of U.S. energy supply. 3. A petroleum import fee would improve the financial situation of banks with large portfolios of energy loans. 4. A variable import fee designed to maintain the domestic price of oil above a floor price would tend to stabilize domestic energy prices and provide some protection to domestic producers against a future collapse in oil prices. The supply of capital to the petroleum industry likely would increase as a result of such price protection. Arguments against the proposals 1. A tax on imported 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 imported petroleum would impose a larger burden on low-income relative to high-income households, since poorer households spend a larger portion of their disposable income on petroleum products. 3. A tax on imported oil would raise only about one-third of the revenue of a tax imposed on both domestic and imported petrole um. Exempting domestic production in effect transfers about twothirds of the potential revenue as a windfall to domestic producers. 4. A tax or tariff on imported petroleum would adversely affect Mexico, Canada, the United Kingdom, and other non-OPEC oil producers who jointly supplied over half of the petroleum imported into the United States in 1986. Also, such a tax or tariff would violate the GATT unless covered by the national security clause. 5. A variable import fee designed to establish a floor under the price of domestic petroleum would fail to raise revenue if the world price were to rise above the floor price. 8. Motor Fuels Excise Taxes a. Increase in excise tax rates Present Law Four separate excise taxes are imposed on gasoline, diesel fuel, and special motor fuels under present law. A tax of 9 cents per gallon is imposed on gasoline and special motor fuels and a tax of 15 cents per gallon is imposed on diesel fuel used in highway vehicles; revenues from these taxes are deposited in the Highway Trust Fund. Fuels used in commercial aviation (i.e., aviation carrying passengers or cargo for hire) are exempt from the tax. Fuels used in general aviation are subject to the general motor fuels excise taxes, plus a special, add-on tax. Revenues from these taxes on aviation gasoline are deposited in the Airport and Airway Trust Fund. A tax of 0.1 cent per gallon is imposed on gasoline, special motor fuels, and diesel fuel (including such fuel used in nonhighway uses such as trains and all aviation gasoline); revenue from this tax is deposited in the Leaking Underground Storage Trust Fund (LUST). Fuels used in vessels engaged in transportation on specified commercial inland waterways are subject to a separate excise tax, receipts from which are deposited in the Inland Waterways Trust Fund. This excise tax presently is 10-cents per gallon, and is scheduled to increase to 20-cents per gallon beginning in 1995. The waterways fuel tax does not apply to marine water transportation. Exemptions from some or all these taxes are provided for fuels sold for export, for use by State and local governments, for use by nonprofit educational organizations. Fuels used in farming are exempt from the Highway Trust Fund taxes. Additionally, a partial exemption is provided from the Highway Trust Fund taxes for certain fuels blended with alcohol. The Highway Trust Fund taxes are scheduled to expire after September 30, 1993. The LUST taxes are scheduled to expire after December 31, 1991, or earlier if revenues from the tax reach a specified amount. The Airport and Airway Trust Fund taxes are scheduled to expire after September 30, 1987. Possible Proposals 1. The excise taxes on all motor fuels used in highway uses could be increased by 5 cents per gallon or by 10 cents per gallon. 2. After increasing the motor fuels excise taxes on motor fuels used in highway uses as provided in possible proposal 1, the taxes could be indexed for inflation using the CPI. 3. The increases in possible proposal 1 could be limited to gasoline and special motor fuels (i.e., diesel fuel used in highway uses would continue to be taxed at 15.1 cents per gallon). 4. Possible proposal 1 could be adopted, with the taxes being expanded to apply to nonhighway uses (e.g., trains, aviation, and shipping) that are subject to the LUST tax. Pros and Cons Arguments for the proposals 1. Increased motor fuels taxes may reduce domestic consumption as a result of increased prices. Reduction in the amount of petroleum products consumed in the United States promotes greater energy self-sufficiency, which helps achieve an important national security objective. 2. Since manufacturers use only a small proportion of the motor fuels consumed in the United States, a tax on motor fuels would have relatively little effect on U.S. competitiveness in international trade. 3. Increasing the motor fuels taxes on as many types of transportation as possible would avoid competitive disadvantages among industry segments. 4. Motor fuels are taxed at substantially higher rates outside the United States. In 1982 (fourth quarter) the energy tax on gasoline in the 10 major International Energy Agency countries was 91.3 cents per gallon versus an average Federal-State tax of 15 cents per gallon in the United States (the Federal excise tax on highway motor fuels was increased from 4 cents to 9 cents per gallon in 1983, and the tax on diesel fuel was increased from 9 cents to 15 cents per gallon in 1984.) 8 Arguments against the proposals 1. Excise taxes imposed at a flat rate are regressive, i.e., they cost the poor a larger percentage of available income than the taxes cost wealthier individuals making the same purchases. In 1985, gasoline expenditures were 17.04 percent of income for persons with income of less than $5,000 and only 2.28 percent of income for persons with income of more than $50,000.9 2. The taxes on motor fuels have been imposed exclusively as earmarked transportation user taxes for over thirty years. Use of these taxes for general deficit reduction would be viewed by some as an inappropriate violation of this policy. 3. Increased taxes on diesel fuel may encourage evasion of the tax through use of untaxed home heating oil, which is essentially equivalent to diesel fuel, as a motor fuel. 4. The burden of the highway motor fuels taxes is greater in the sparsely populated States where distances traveled per capita is greater than the national average. 8 International Energy Review, Energy Information Administration, August 1985. • The Distributional Aspects of an Increase in Selected Federal Excise Taxes, Congressional Budget Office Staff Working Paper, January 1987. |