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Congress Divided Over Whom to Tax, How to Use Funds : Oil-Import Fee Issue Sparks Rift in Industry

February 24, 1986|TOM REDBURN | Times Staff Writer

WASHINGTON — Last summer, three influential senators from the nation's major energy-producing region made a pilgrimage to the White House in an effort to persuade top Reagan Administration officials to support an oil-import fee that would both help protect the struggling domestic oil industry and arrest a worrisome slide in revenues in their home states.

The senators--Democrats David L. Boren of Oklahoma, Russell B. Long of Louisiana and Lloyd Bentsen of Texas--went away empty handed, but White House Chief of Staff Donald T. Regan offered some parting advice:

"Come back," Regan said, "if the price of oil falls to $20 a barrel."

Today, with some oil prices plunging below $15 a barrel, they are back--and this time the White House is listening.

Blessed earlier this month by President Reagan as virtually the only new source of revenue he will consider, the idea of imposing an oil-import tax is being taken more seriously than ever.

But supporters of an oil-import fee probably will not be able to overcome some deadly political flaws. Although the proposal would boost depressed domestic oil and gas drilling operations by providing a floor under U.S. prices, for example, it has split the oil industry into rival camps.

At the same time, fierce opposition from the import-dependent Northeast, combined with Senate infighting over how the relatively limited revenues from such a fee should be used, are likely to sound its death knell. As a result, the way could be opened for a broader energy tax or a higher gasoline tax--which, ironically, would exacerbate the problems of the groups that backed the original idea of a tax on imported oil.

"The oil-import fee is like opening Pandora's box," argued Harold B. Scoggins Jr. of the Independent Petroleum Assn. of America, the Washington lobbying arm for many independent oil-drilling firms. "It looks great at first glance, but we don't have the clout to get it, and all it does is turn the attention of Congress to the idea of raising taxes on the industry."

Despite these fears, a tax on imported oil of up to $10 per barrel is being championed this year as the solution to a host of knotty problems, from meeting Gramm-Rudman deficit-reduction targets, to allowing Reagan's tax-overhaul plan to retain crucial tax breaks for businesses, to preventing the collapse of some Southwestern banks because of sour energy loans.

Supporters include highly placed Texans in the Administration such as Vice President George Bush and Treasury Secretary James A. Baker III, as well as Senate Majority Leader Bob Dole (R-Kan.) and other key lawmakers.

With oil prices in a steep decline, lawmakers have turned their attention to the oil-import fee and other energy taxes as the least painful way to raise revenues. A Senate Finance subcommittee is scheduled to hold two days of hearings this week on the issue in an effort to broaden support for the fee.

"An energy tax is appealing to Congress because it looks like it wouldn't hurt," said Joseph Minarik, a tax analyst at the Urban Institute, a nonprofit Washington think tank. "You can argue that the tax wouldn't mean higher prices, but would simply keep them where they were."

Backers of the oil-import fee present several arguments on its behalf, but they all boil down to the need to sustain domestic oil and gas drilling to prevent the United States from growing overly dependent on foreign oil.

"I've been warning for more than two years that the domestic industry was in danger of being driven to the wall, and now it's coming true," said Houston oil magnate George P. Mitchell, head of the one of the largest independent oil companies in the nation.

"(Saudi Arabian Oil Minister Sheik Ahmed Zaki) Yamani wants to break the back of (U.S.) frontier exploration so he can recapture control of the energy market five years down the road," Mitchell warned. "If we don't respond with an oil-import fee, I'm afraid he'll get away with it."

Advocates of a tax on imported oil also point to the alarming plunge in U.S. drilling for oil and gas--which has fallen from a high of about 4,000 drilling rigs in the field in 1981 to fewer than 1,400 recently--and contend that it is the only way to stabilize an industry they insist is crucial for national security.

"We have to focus on the long-term benefits of retaining a strong domestic oil and gas industry," Boren, a senior member of the tax-writing Finance Committee, said. "The exploration budgets of the majors are being slashed; the drilling supply companies are in bad shape, and the independents are shutting down their marginal properties.

"If the price stays depressed long enough," Boren asked, "how will we respond when the Saudis once again decide it is time to raise prices?"

Could Boost Prices

Indeed, if an oil-import tax is imposed, domestic producers would be able to boost their prices, too, providing additional profits and an incentive to maintain expensive drilling operations.

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