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The Energy-Tax Doily


Washington. -- The Dean of St. Paul's knew how to lodge a credible tax protest. When in 1294 Edward I summoned the clergy to his presence and demanded half their revenue, the good dean dropped dead on the spot.

As the taxaholic Clinton administration struggles to govern this taxaphobic nation, it is provoking protests not quite as stirring as the dean's, but which should be heeded. Consider the proposed energy tax, beginning with the aluminum industry, as reported by Paul Klebnikov in Forbes.

Russia, desperate for hard currency, is flooding the market with aluminum. Its exports are up about five-fold since 1988, and the world price has plummeted. Now American aluminum companies, for which energy averages 30 percent of costs, are menaced by President Clinton's energy tax. It would be piled on top of the mounting costs of complying with the 1990 amendments to the Clean Air Act, which are expected to add 5 percent to the cost of coal-fired electricity by the end of the decade.

Alcoa, world's largest aluminum company, expects that the energy tax would add 5 percent, or $100 million a year, to the cost of its U.S. smelting operations. If so, Alcoa will be even more at a competitive disadvantage with producers in the Middle East, Latin America and elsewhere where energy is cheaper and environmental laws are less burdensome.

Alcoa produces 90 percent of the aluminum bought by Boeing. But Boeing is cutting aluminum purchases 35 to 40 percent this year. One reason is the condition of the airline industry (collective losses of $10.5 billion since 1990). While the Clinton administration's "industrial policy" deep thinkers are pondering how to succor to the airline and aerospace industries, the president is trying to pass an energy tax injurious to both.

Airlines are buying fewer airplanes, partly because passenger growth has been anemic. New technologies, such as video conferencing and fax machines, have provided alternatives to business travelers carrying pieces of paper to meetings hither and yon. Furthermore, the pruning of middle management by U.S. companies has pruned many of the business travelers whose purchases of full-fare tickets have subsidized bargain fares for leisure travelers. An energy tax would make matters worse.

Already it is clear that if an energy tax (a tax on consumption and on a component of production) is passed, it will look like a doily -- a mesh of loopholes. The Clinton administration already agrees to exempt airline fuel for international flights. And with Democrats having only an 11-9 advantage on the Senate's tax-writing Finance Committee, every committee Democrat has leverage for prying concessions from the administration.

Already the committee's chairman, New York's Pat Moynihan, joined by the majority leader, Maine's George Mitchell, has won exemption of home heating oil (much used in the Northeast) from the proposal to tax oil products at a substantially higher rate than coal or natural gas.

(Why that higher rate? Perhaps Vice President Gore, the keeper of the planet, thinks the world is rapidly running out of oil. And perhaps the administration thinks America is importing "too much" oil. For the record, in 1950 known world reserves were 76 billion barrels, a 20-year supply at then-current consumption rates. Between 1950 and 1992 the world used more than 600 billion barrels. Today there are known reserves of almost one trillion barrels, about 47 years of consumption at current rates. The administration's own estimates suggest that the energy tax would reduce U.S. dependence on foreign imports only from 56 percent to 55 percent, and the administration is probably underestimating the injurious impact of the tax on domestic production.)

Kent Conrad, a Finance Committee Democrat from North Dakota, is not much mollified by the exemption of ethanol from the energy tax. He has studies purporting to prove that the tax would cost North Dakota farm families -- average annual income $17,600 -- $1,200 a year.

Industrial Ohio, the third-highest consumer of energy among the 50 states, estimates that its energy bill would increase $1.3 billion annually. The president of its Chamber of Commerce says that if the tax is enacted, "some of the state's industries -- steel, aluminum, mining and glass -- face a struggle for survival and severe layoffs."

The energy tax, the largest component of President Clinton's "deficit reduction" package, almost certainly would depress job creation and economic growth, and hence would enlarge the deficit. The energy tax is the worst idea (well, the worst idea about taxes) the administration will have until Mrs. Clinton proposes her even more whopping tax bill for health care.

The energy tax may be defeated in Congress by a coalition of Republicans joined by nervous Democrats, especially those from farming and energy-producing states. If the tax is passed, some companies, and the recovery, and some political careers may do what the Dean of St. Paul's did.

George F. Will is a syndicated columnist.

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