'Oil and Common Sense'

March 20, 1986

Your editorial (March 9), "Oil and Common Sense," was very slippery and contained much nonsense!

You assume that an increase in tax revenues produced by higher gasoline tax rates will reduce federal budget deficits. If federal tax revenues are increased either by imposing new taxes or increasing existing tax rates, it is doubtful that this will translate into deficit reductions.

In the absence of effective controls on federal outlays, experience suggests that increases in non-defense spending will swallow up additional tax revenues. True progress toward permanent deficit reduction will commence when Congress abandons its search for new sources of tax revenues and focuses on creating mechanisms to control federal spending.

Most politicians have recognized a connection between the results of the 1984 presidential election and Walter Mondale's campaign promise to raise taxes. For this reason, gasoline or other energy taxes that appear to be well camouflaged and virtually "painless" are beguiling to many lawmakers. Supposedly, motorists recently accustomed to paying $1.25 per gallon for gasoline will hardly notice and be little harmed by a 25-cent-a-gallon tax that hikes the price back to $1.25.

It is doubtful that consumers are as insensitive as this argument presumes. However, even if it were true that higher energy taxes inflict little immediate pain, this would not mean that they do no harm.

In the long run, a gasoline tax would alter the composition of the American motor vehicle fleet. Smaller, more fuel-efficient models would dominate the gasoline-powered vehicle markets. The use of vehicles powered by fuels exempt from the gasoline tax would become more widespread.

A gasoline tax increase would fall heavily on U.S. auto makers. Given their superiority in producing larger models, they stand to benefit from lower gasoline prices. A gasoline tax that freezes gasoline prices at higher levels would force U.S. auto makers to make costly adjustments to the changes in their markets. Until these adjustments were complete, the U.S. automobile industry would lose market share to foreign competition. A slowdown in U.S. auto making would spread to other industries and dampen the pace of economic growth in this country.



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