THE Clinton administration deserves support for taking action to
reduce the deficit. However, its deficit package is far from
perfect. It includes a broad-based energy tax that will harm the
economy - and won't much help conservation, the environment, or
energy security. If more taxes are needed, a value added tax on a
wide range of products makes much more sense.
The economy and deficit
In 1997, with the energy tax fully in place, Americans will pay
almost $33 billion in new taxes. They will pay more for fuel to
heat their homes, power their cars, and operate their businesses -
and also more for goods and services made with energy.
The total tax will average about $475 a year for every four
people, with some families spending considerably more. That much
less will be available to spend on food, housing, medicine,
education, and everything else. In turn, businesses will sell less
and employ fewer people. And since foreign firms won't pay the tax,
United States companies will find it tougher to compete, forcing
further job cuts. The impact will be severe on such industries as
airlines, trucking, agriculture, steel, aluminum, rubber,
A recent study by DRI-McGraw Hill shows that by 1998 - less than
one year after the tax is fully implemented - about 400,000 jobs
will be lost.
And with those people out of work, the government will receive
less in income and payroll taxes and pay out more in unemployment
benefits. The administration also plans to spend almost $4 billion
on food stamps and earned income credits to ease the tax's pain on
As a result, just a little more than half of the $33 billion
collected will actually be available to reduce the deficit. The
administration currently says that reducing the deficit will lower
interest rates, improving people's finances. But this will provide
little comfort to those unemployed - especially since another tax
could have cut the deficit without nearly the pain in lost jobs.
Laura D'Andrea Tyson, head of the administration's Council of
Economic Advisors, says that the energy tax is primarily "a
conservation measure" and "not ... a revenue-raiser." And it is
through conservation that the administration hopes to significantly
cut oil imports and improve the environment.
But the administration's own figures show that conservation will
be minimal. Consider the tax's impact on the consumption of oil -
where most conservation might be expected, with oil taxes at a
discriminatory 2 1/3 times the rate of any other kind of energy. …