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the Congress in this bill that came up yesterday, anticipates that $1112 billion of this $30 billion goes back to individuals in the form of tax reduction.
Senator CHURCH. Would you repeat that for me, please?
Senator CHURCH. Thank you. Goes for what now?
Secretary MORTON. Goes for tax reduction for individuals, and $5. billion also goes to individual taxpayers, and at $80 apiece, which amounts to $2 billion to those people at the lower income group that do not pay any taxes at all.
So, you get a total of $19 billion going back to individuals, and you get $6 billion that will be distributed to industry and commerce; the job producers, in the form of a lower income tax rate.
Two billion dollars goes to State and local governments on the general revenue-sharing formula to offset State and local government increase in energy.
In other words, if a State and local government can conserve energy they have an opportunity to come out on the plus side economically, and so does the individual.
Three billion dollars would be retained by the Federal Government in order to offset the Federal Government increase in energy, and if we can continue to be successful in the conservation program within government itself, this will be a net gain for the people and would just be that much more money that the government would not have to borrow in order to continue to operate.
I think the rebate part of this is so important and it. has received so little emphasis as to what it provides in the way of an opportunity for local government; what it provides in an opportunity for conservation in the Federal Government; and above all what it provides for in the way of opportunity to win the battle of energy on the part of the individual.
I think it is worth emphasizing at the beginning of these hearings. The second thing that I would like to address is the question of the management of the flow-through of this cost as it goes through the energy economy.
As of today, under legislative authority that the Federal Energy Agency has, the allocation of additional cost to various products that come out of the end of a refinery can be managed by the Agency.
In other words, the bulk of this additional $2 can be directed toward gasoline. For example, jet fuel could be free of any additional cost by simply putting this cost on in a managed way on those particular items that come out of the refineries in a way that has the least detrimental impact on the economy.
And I think this is exceedingly important to recognize as a factor in this whole energy program.
The controversy that has arisen over the amount of this actual cost to each individual family has created somewhat, I think, a lack of credibility on everybody's part as to what the actual figure is.
Sticking to the figure of $275 per family, and I think, a lot of this comes from the very point that Senator Hansen made earlier, of the time frames that are involved.
For example, if you deregulate new natural gas, and only new
effect until they run out, and the immediate impact on the cost of gas is going to be a very gradual proposition other than the 371⁄2 percent excise tax.
The same thing goes for utilities that make their electricity from long-term contracted fuel. This is true of residual oil and coal, and primarily coal.
The actual change in the energy cost of these fossil fuels should have no effect on that part of the electricity that is made in the light, water nuclear generation.
So, I think we have been trying to mix together apples and oranges, and I want to warn the committee to be sure and look underneath and indepth into the base data that is used for any economic -evaluations that have come forward, either pro or con, concerning the President's program.
I think this is exceedingly important.
I have a few figures that I would like to put into the record, which I won't repeat, but they are the amount of rebate that various people would receive based on their income, and I think that table, which I would like to supply for the record, is important.
Finally, I would just like to add one thing to what I have already said. Mr. Chairman and members of the committee, and that is that this program did not grow out of any kind of backroom type of meetings, or seminars, or consideration.
Every single department of the Government that was a member of the Energy Resources Council, and many of those that were not, was called on to respond not only to the blueprint study that was developed by the Federal Energy Administration, but were called on to respond in a total sense to the energy problem as it has been displayed.
In addition to this, a long series of meetings were held-many of them formal, many of them informal-to get from various parts of the private sector, from various interests in the economy, all the input that we could muster, to come to these conclusions.
Most of the aspects of the President's program are interrelated. I think it would be very difficult to take away one part of it, cut off one of its arms, and expect it to function properly.
Particularly, I think, a prerequisite is the rebate characteristic of the program which put the money back into the economy as fast as it takes it out, and it that way does not tend to exacerbate the inflationary aspects of the price change.
It also provides an opportunity for people to readjust their life style and patterns to a new energy ethic, with which I agree wholeheartedly with Senator Randolph. This new energy ethic must be developed.
It allows them to do this based on their own decisionmaking process, and I do not believe that a ration board, or any kind of a ration ticket system can give the flexibility to the economy that the American people need to win this battle. And truly it is a battle to become energy independent by 1985.
But I hope that this committee in its efforts here to understand the President's program will go through it in detail. Call us back over and over again to explain various elements of it. Meet with us privately. We must do everything we can to develop an understanding of the
Thank you, Mr. Chairman, for your patience, and I would include my whole statement in the record, as you said. Thank you, sir.
The CHAIRMAN. Thank you, Mr. Secretary.
We will go under the 5-minute rule that we have adopted.
Mr. Secretary, as I've indicated, I think there are a large number of areas of agreement that we will be able to move very rapidly on. But let us come right to the nub of the problem. The nub of the problem which is being debated all over the country.
I have gone through this full report, entitled "The President's 1975 State of the Union Message including Economy and Energy,' and I don't find an answer to the question that is being debated in every other corridor and every other column and that is this:
The administration proposes a series of price increases. Decontrol of oil, decontrol of natural gas; new natural gas, the consequent increase in the price of coal and salt.
The other area relates to the $2 tariff on imports, and a $2 excise tax on local oil.
Now, when you add that all up how much does it come to?
Then over in the other column are the rebates and the tax deductions. All I have, and I just picked up the morning editorial quoting Mr. Houthakker, formally of the Council of Economic Advisors, Dr. John Sawhill former Administrator of the Federal Energy Administration, all pointing in just one direction that the economy is in a recession, and we are in inflation.
And the net effect of this is to take more money out than you are going to put in, and in order to get at the recession you have to put money in, and not take out, and not exacerbate the inflation.
Now why shouldn't there be in this document a list of what the additional costs are going to be, and what the deductions will be, and show a net plus or minus?
The information that is floating around is that the net takeout is $20 to $25 billion.
The purpose of this hearing this morning is to get at the heart of that singular issue. That is what the debate is on over on the floor.
Now, I don't find one word in here, in this white paper, on that central issue, which is the central debate in the United States today. Would you please comment and tell us, does it take more out than it puts in?
Secretary MORTON. No. 1, Senator Jackson and members of the committee, the price of oil has been quadrupled, and the cost of energy is at a new plateau, and I think that is worldwide and we all agree to that.
That is something that is with us, and probably will be with us for years to come.
The amount of money that is directly taken out of the economy is $2 a barrel across the board and 371⁄2 cents per 1,000 cubic feet for gas. The CHAIRMAN. That's an excise tax.
Secretary MORTON. That is on the excise tax.
The CHAIRMAN. And on the tariff?
Secretary MORTON. The proposal is $2 a barrel across the board. Two dollars on foreign oil as a tariff. Two dollars on domestic oil as
The tariff part of this is prior to the congressional action of the program itself, which contemplates
The CHAIRMAN. You start taking out a dollar a barrel on Saturday. Secretary MORTON. The amount of money that is taken out on Saturday, and starts then, of course, will depend on entirely when the Congress acts to implement the entire program.
The CHAIRMAN. Then on April 1 you increase the price of old oil, which is 50 percent of our production, from $5.25 a barrel to the current price of around $11.40 plus the $2, or if you go the $3 it becomes the world price of either $13.40 or $14.40.
Secretary MORTON. You take $2 a barrel across the board on oil, 37% cents on 1,000 cubic feet of gas, and you decontrol the price of old oil and you capture a good piece of that decontrol through your windfall profits tax.
The CHAIRMAN. Can't we get a figure now? That is all I am asking, because this is the controversy that is raging all over the country. What is the difference? Is it a plus or a minus?
This white paper, as thick as it is, doesn't have a word one about the balance sheet. The balance sheet on the one hand, you have all of these increases. Over here the administration proposes decreases. Now, do we end up plus or minus?
That is the $64 question, and that is what the whole debate is about. Just in that one question.
Secretary MORTON. The $16 billion tax cut, plus the refund, will put more money back into the economy than you are going to take out through the tariff, through the $2 a barrel excise tax plus the recapture of the windfall profits.
The CHAIRMAN. Mr. Secretary, let me ask you this. The figures that we have been given from Mr. Houthakker, who is the former administration man, shows that they are taking more out than you are putting in. Now, I think, we ought to get this settled in order to have a debate that is going to be intelligible to the American people.
The airlines say there is a 20-percent increase in fares. Maybe they have the wrong information, but this is the forum.
Here we are out in open debate subject to cross-examination, and I ask only an answer to the question that the reporters are asking me, that everyone is asking me, whose figures are right?
Add up the column. Here is the total cost. Here is what we are going to add in the way of taxes. Here is what we are going to add in the way of price increases. And over here is what we are going to return.
Now, when you look at those two columns is it plus or minus, and how much? They shouldn't put out a paper unless they have those figures. I can't find it.
Secretary MORTON. I am going to ask the Treasury Department to give you those in the way that you want them.
The CHAIRMAN. The only reason that I am asking the question. Mr. Secretary, is that the economy is turned all the way around now. It is a different situation.
The President was courageous enough to move away from the tax increase; the surcharge, to a tax decrease.
Now, the theory is that we need to put money back into the economy, and are we putting money back into the economy, or are we taking
Secretary MORTON. Well, there is one thing that has to be added to this, and that is the amount of money that is saved by not buying at x numbers of barrels from the world market of oil.
The CHAIRMAN. That is an assumption. If the Arab countries don't raise their prices, but you also have to add that terrible increase that jumps overnight like that, from $5.25 a barrel to $13.40. That is 60 percent.
That is all we are asking, where is the recovery?
Mr. PARSKY. I think, Senator, it is important to view the energy proposals and economic proposals together. If you just look at the energy proposals, you are not looking at the package as a whole.
The CHAIRMAN. I'm not?
Mr. PARSKY. If you look at the package as a whole, you will find there is a total of $30 billion, which is raised through the energy proposals, and then rebated. It brings the consumer to a net balance in terms of the energy costs.
However, with respect to the other part, we have also proposed in addition to the reduction in 1974, a one-time rebate of $16 billion, which returns to the economy an increased amount of stimulus.
The CHAIRMAN. Mr. Parsky, this is what the whole debate is raging about that has tied up on the floor of the Senate.
Why don't you just give up those figures?
Here is Mr. Houthakker, here is Dr. Sawhill, outstanding men right out of this administration and the figures that we have show from $20 to $25 billion net pickup.
Now, that is what the economists are arguing about. That is what the businessmen are complaining about.
And you put out this voluminous white paper, but there is not one word on what the total costs are, what the total deductions are, what the net balance is. Can't you give us a rough estimate?
You certainly can't come up here and propose this program without giving us that balance sheet, because that goes to the heart of dealing with the economic situation that we face. It is that simple.
Mr. PARSKY. Senator, I will be glad to supply you with that kind of balance sheet.
If you look at the fact sheet, which I believe is the document that you have, you will find it is quite detailed and it does go through the whole range of economic and energy proposals.
The CHAIRMAN. Will you give us the balance, plus or minus?
The CHAIRMAN. How much?
Mr. PARSKY. There is an additional $16 billion that is returned through the one-time rebate.
The CHAIRMAN. I want to get this straight Mr. Parsky. You are saying, that when yon add up the entire cost of the excise taxes, you are proposing, the decontrol of the old oil, that you propose to do overnight on April 1, the decontrol of new gas, the additional cost of coal, and the intrastate gas, that you end up with a net put back into the economy of $16 billion.
Mr. PARSKY. I can only supplement that by saying, that we do have some disagreement as to the increased additional cost.