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'Flexibility' by Clinton paves way for energy tax OK from House panel likely this week


WASHINGTON -- Static crackled on the line when President Clinton reached Bill Brewster Friday on the congressman's car phone as he was driving through his district in the hills of eastern Oklahoma.

But the junior member of the House Ways and Means Committee could hear clearly what the president was saying: uncle.

As has become his pattern in such deliberations, the president was bowing to the inevitable in agreeing to the only major change in his proposed new energy tax. Mr. Brewster had mobilized enough support for an amendment designed to ensure that consumers, not utilities or producers, foot the bill for the tax on the energy content of fuel.

Mr. Clinton's practice of "flexibility," as his friends call it, will enable him to claim a big victory at the end of this week, when the Ways and Means Committee is scheduled to produce a major tax bill that would raise all the money requested by the president from roughly the same sources he proposed.

Tax increases on the wealthy, Social Security recipients and corporations will be endorsed to produce a total of $337 billion over the next five years. About one-fifth of that amount will come from the energy tax, though it would be collected more directly from consumers under Mr. Brewster's amendment than under Mr. Clinton's.

"I admire a man who is willing to look at something and say maybe it can be done another way," said Mr. Brewster, a Democrat, who pulled his car over to a pay phone along the highway to negotiate further with the president.

Others warn, though, that Mr. Clinton's eagerness to switch rather than fight for certain principles might cost him dearly in the Senate, where it is much harder to keep the bargaining under control.

The president retreated on an investment tax credit for business, several proposals aimed at raising taxes on international corporations and granted many earlier exemptions from his energy tax to get his budget blueprint passed by the Senate last month.

"I'm concerned that we're negotiating away so much on the [energy] tax that we won't have any [energy] tax left," said Sen. John B. Breaux, D-La., who, like Mr. Brewster, is from an energy-producing state where the tax is very unpopular. "We're going to wind up owing money."

According to estimates from the Treasury Department and House of Representatives, however, the energy proposal before the Ways and Means Committee and all the political changes made to date will still raise the $70 billion Mr. Clinton needs.

Despite the hordes of lobbyists milling outside the Ways and Means Committee's private negotiations, Chairman Dan Rostenkowski, D-Ill., has made the rules very clear: No changes can be made in the tax bill unless the overall amount of money raised remains unaffected.

Mr. Brewster, 55, a pharmacist and Angus cattle farmer who became something of an energy expert during his six years in the Oklahoma Legislature, argues that his amendment was a simple matter of fairness and honesty.

His district, known as Little Dixie, including many independent natural gas drillers and producers who, under Mr. Clinton's proposal, would have been directly responsible for the paying the new tax on energy.

The president's tax would be levied on the amount of heat produced to create the energy as measured by British Thermal Units.

Mostly for political reasons, the administration wanted to collect the tax at the source of production, where it would be less visible to consumers.

The administration told industry representatives that consumers would ultimately have to pick up the tab. But Mr. Brewster's constituents complained that they had long-term contracts and couldn't raise prices right away to compensate for the tax.

Natural gas distributors were concerned that regulators would not automatically approve rate increases to cover the tax.

"I've never believed that you could get away with hiding a tax," Mr. Brewster said. "So, I figured we ought to just do it up front."

Mr. Brewster proposed an amendment that would move the point of collection from the producers to the consumers and formed a coalition that included some of the most powerful lobbies on Capitol Hill.

White House and Treasury Department officials resisted the congressman's proposal for two months. But by late last week, Mr. Clinton was told the congressman had rounded up enough votes to prevail.

"We now have an agreement on point of collection," Mr. Brewster said.

The negotiations launched by Mr. Clinton's phone call have centered on how the change in collection would affect utilities that sell electricity. The administration wants to encourage those utilities to use the cleanest-burning fuels, and it was still discussing a way to achieve that goal.

In most of his dealings with Congress, President Clinton has shown a willingness to compromise with opponents and adopt their approach as his own.

That strategy has prevailed on almost every issue except his $16.3 short-term, economic stimulus bill, which was defeated by a filibuster in the Senate. Mr. Clinton refused to compromise on that proposal until the battle lines were too sharply drawn.

One gas industry lobbyist said he thinks the president was so upset by that defeat that he is now looking for a victory at almost any cost.

"He seems to be trying to please everybody," said Mark Stultz, a spokesman for the American Gas Association, which supports the Brewster amendment but remains opposed to the energy tax. "They are at the point where they are desperate for a victory, but personally I'd like to see them go the wall on something just to show they have some grounding."


* Corporate Taxes: President Clinton's proposal would raise the corporate income tax rate from 34 percent to 36 percent. But the House Ways and Means Committee is likely to reduce the increase from 36 percent to 35 percent or 35.25 percent.

* Investment Tax Credit: Small businesses would have a received a 7 percent credit for new capital investments, and larger corporations would have gotten a smaller benefit. But the Clinton tax credit died in the Ways and Means Committee because of congressional opposition and little backing from the corporate community.

* Energy Tax: Clinton administration originally proposed taxing a fuel's energy content and collecting the tax from utilities and natural gas producers. The Ways and Means Committee is likely propose collecting the tax from individuals and businesses rather than utilities, making it likely that consumers will see the tax on their monthly utility bills. Some groups, such as farmers, are pressing for exemptions, but it is too early to say whether they will get them.

* High-Income Taxpayers: The current peak tax rate of 31 percent would jump to 36 percent for couples with taxable incomes over $140,000 and singles earning more than $115,000. There would be a 39.6 percent rate for both individuals and couples earning more than $250,000. This is likely to pass with few changes.

* Hospital Insurance Tax: $130,000 is the current cap for the Medicare tax. Under Mr. Clinton's plan, that cap will be removed and all earned income would be subject to the tax. This proposal is expected to pass.

* Social Security: Up to 50 percent of Social Security benefits are now taxable for couples earning more than $32,000 per year and for singles who make more than $25,000. Under the White House's plan, that would increase to 85 percent. This should move through easily.

* Business Meals: Currently, 80 percent of business entertainment costs are deductible. The Clinton plan would cut that to 50 percent. Opposition from the restaurant industry is strong but unlikely to stop this change.

* Earned Income Tax Credit: This tax cut, aimed at individuals making less than $23,760, would be expanded in a move to help the working poor. This should easily pass the Ways and Means Committee.

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