The Fight to Tax Big Oil

Carter's decontrol and windfall plans stir a storm in Congress

As gasoline nudged toward $1 per gal., and growing numbers of service stations around the country rationed sales to $5 or less per customer, Congress began battling over Jimmy Carter's plan to raise fuel prices still higher. Already the strategy is drawing heavy fire from left and right for being everything from a giveaway to Big Oil to a bureaucratic interference with private business to a dangerous new fuel for inflation.

The sharpest attacks are against the package's two most important parts. They are to phase out domestic oil price controls beginning in June, and to bring in a "windfall profits" tax. Scrapping controls will allow U.S. oil prices, which average about $9.45 per bbl., to rise during the next two years to the cartel-set world level, which already stands at a minimum of $14.55 and is certain to climb still higher. The oil companies would get an extra $6.5 billion in earnings annually from decontrol, but about half of the money would be taxed away. The Government would use much of the tax revenues to help industry shoulder the daunting costs of projects aimed at extracting oil from shale rock and coal, and to bankroll substantially increased research into solar energy.

Many legislators have urged Carter to come up with just that sort of program all along, but now they seem ready to condemn him for doing so. Senators and Congressmen from New England, where home heating oil prices in some cases have jumped by 25% since last autumn, complain that decontrol will just make matters worse. Says Massachusetts Senator Edward Kennedy of Carter's program: "It's bad economic policy, it's bad energy policy, and it's bad for the country." Legislators from Texas, Oklahoma and other petrobelt states argue that Carter's tax is unnecessary and that oil companies would spend the profits of decontrol on the search for more petroleum anyway.

Some members of Congress have done an almost total about-face. Until a few weeks ago, Democrat Henry Jackson of Washington, chairman of the Senate Energy Committee and Carter's principal Senate ally on energy, supported phased decontrol. But a trip back home to the Northwest changed his mind, as voters howled about rising fuel prices. Last week Jackson joined with Kennedy and Ohio Democrat Howard Metzenbaum, one of the Administration's bitterest foes in previous energy fights, in co-sponsoring a bill to overrule Carter and extend price controls for two years. With less than five weeks remaining before Congress's Memorial Day break, the bill, which requires a majority vote in both the House and Senate, stands little chance of passage.

Though the Administration optimistically asserts that decontrol will add less than .2% annually to the rise hi consumer prices, the impact could in fact be much more severe. No one really knows to what extent inflation will be aggravated by potentially limitless price rises hi a commodity so basic to the economy as petroleum, yet the nation has no real alternative to freeing up the price of crude. It seems pointless for Washington to preach to the world about the need to conserve while at the same time maintaining artificially low prices that encourage waste.

Price controls also discourage American companies from drilling for crude in the U.S., and that inevitably boosts the nation's alarming dependence on imports, which now account for nearly 50% of the 19 million bbl. of crude that the U.S. uses each day.

Since decontrol appears inevitable, the real scrap will be over Carter's tax proposal. Not only must both the House Ways and Means Committee and the generally pro-industry Senate Finance Committee agree on its details, but after that, the full House and Senate must also vote on the tax. Says a key member of the Senate Energy Committee, Louisiana Democrat J. Bennett Johnston: "There are almost as many views of what is a fair tax and what its proper uses would be as there are members of Congress."

Oilmen insist that all the profits of decontrol, not just some of them, are urgently needed to finance the search for crude. Asks Hugh Liedtke, chairman of Pennzoil Co.: "Are we to raise more tax money or raise more oil?" But some of the biggest firms are swinging around to an emotional accommodation with the idea of a tax, so long as it is phased out in a couple of years. What they want is a temporary levy with a so-called plow-back provision. Under it, companies would be able to reduce their windfall profits taxes each year by stepping up expenditures on increased production. Smaller oil companies and wildcatters are also joining the battle against the windfall profits tax, but plan to do their own lobbying. Explains Jack Allen, president of the 5,000-member- Independent Petroleum Association of America: "We don't want to be tarred with the same brush as the oil majors."

Congress will find it difficult to avoid the passage of some sort of tax. Oil industry profits for the first three months of 1979 will soon be released, and they will show a surge of perhaps as much as 40%, largely because the OPEC cartel's price rises have caused higher prices in the U.S. too. In addition, companies benefit because their stockpiled inventories of crude, bought at lower prices, also rise in value. That alone will be enough to anger a public already critical of the oil industry, and the continuing rise in gasoline and other fuel costs will only fan the resentments.

Carter's populist tub thumping is also helping to stir up hostility to oil companies. Two days after his nationally televised energy message, with its harsh attack on the oil industry, the President defended his decontrol program before a Democratic fund-raising dinner by saying, "I will not allow this painful but necessary step to become an excuse for a massive rip-off of the American people by American oil companies. They are going to be all over Capitol Hill like a chicken on a June bug. They say they have more influence on Congress than the American people have. I say, let's prove them wrong." Ultimately, oilmen may find it easier to live with a tax that they do not want than a fire-breathing President and a furious public.

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