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The CHAIRMAN. I had looked forward to this day, really, that here in this forum we could get an answer on the issue that has been raging morning, noon, and night, that has the Nation in an uproar. We come up here today and we can't get a simple balance sheet, but we get a great big thick book.
Mr. ZARB. Senator, I'm not sure what you have in front of you, but that is the factsheet on pages 23 and 24 is the majority of the information that we just referred to. It may be that I have a different one.
The CHAIRMAN. I see on page 23, revenue-raising measures, which you list as oil and gas tax import fee, natural gas tax, profit tax. You come up to $30 billion.
Energy rebates you list as $30 billion.
Total revenue: temporary economic stimulus, individual tax refunds, investments. You have $16 billion.
Total revenue disbursing $46 billion.
Now, tell me where is the plus or minus? You don't list it here at this point. Not a word one about decontrolling the old oil, which is 60 percent of our production. What is your estimate on that cost?
Secretary MORTON. Let's make sure we get
Mr. ZARB. That is in there.
Secretary MORTON. Mr. Chairman, let me also
The CHAIRMAN. Where is that?
Secretary MORTON. For example, you cite the addition of the price of coal. Now, that is an additional cost to coal, but that particular amount of money is not taken out of the economy.
That is cycled through the economy, perhaps in a different channel than it has been cycled before.
The CHAIRMAN. It really hits inflation because the utility user has to pay more on a light bill, and right on down the line. It is like the airlines.
It doesn't take it out of the economy, but it takes it out of the individual user, when they come up here with estimates of 20-percent increase on airline fares.
Secretary MORTON. Let's make sure that we are talking about distribution first. Let's get straight on the distribution by the Government of a dollars versus taxes and levies by the Government, including the excise profit tax as one balance sheet.
Then consider the effect on the economy of those actions within the economic structure itself.
The CHAIRMAN. Mr. Zarb, you know the big increase in cost is the increase of old oil as 60 percent of our production.
It is just like the way the cartel operated when it jumped overnight to this astronomical figure. Old oil jumped from $5.25 a barrel to $11.20, plus the $2, which is $13.20, and if you add the $2 it is $14.20. Now, where is that in the balance sheet?
Mr. ZARB. First Senator, the $3 never gets to $3 if the total package is approved.
THE CHAIRMAN. I am talking about your proposal.
Mr. ZARB. Mr. Chairman, the full program if implemented by Congress would have a $2 tariff on import oil and a $2 tariff on excise tax and domestic oil. It is only the administration action that precedes the congressional action that ever gets it to $3, if we go that far. If congressional action doesn't take place, with respect to the total program.
Just to sort of put this back into the kind of framework that you wish it to be in, I would refer to pages 23 and 24.
On page 23, where the windfall profit tax is shown that is a full rendition of every additional penny that would be accrued to oil producers by virtue of the increase that you just described, plus some. That $12 billion encompasses the release of old oil that you just described.
The CHAIRMAN. But you don't list what the cost will be to the consumer. What the total impact in billions of dollars will be on the decontrol of 60 percent of the oil produced in the United States.
Senator CASE. Mr. Chairman, may I ask a question to clarify myself just to make sure that we are talking about the same thing?
I take it that the administration proposal on that matter, as accorded by them, is not taking money out of the American economy, because it shifts from one to another element of the economy, and therefore it isn't fair to measure that in the same way, or against the kind of thing that takes it out for good, is that correct?
Secretary MORTON. That is correct, Senator Case.
Senator CASE. It will cost more for the individual consumer, but the company will get it, and will pay it in taxes to our Government, or will invest it, and it will get back into the economy in that fashion. It is a matter of justice rather than effect by the American economic activity.
Secretary MORTON. If this doesn't save any energy, if we don't get from here to there, if we don't reduce the amount of energy per capita that we are using, and back off from foreign oil we haven't accomplished anything. Because the whole purpose is to encourage conservation of energy. To reduce the amount of energy per unit of output, as far as industry is concerned.
To reduce the amount of energy used per capita, as far as the individuals are concerned, and the whole idea of the program is to develop a new energy ethic on a lower Btu plateau.
Now, if we don't do that-if we do do that, then the individual is using a million Btu's of energy in a given time frame, and is able to get down to 800,000 Btu's of energy in the same time frame.
It is a negative offset. It hasn't cost him anymore. He has used less, but he has put out less dollars. His rebate more than offsets his profits, so to speak.
Senator CASE. Isn't this also a factor, that the stimulus that is attempted to given the economy is an important psychological one? Secretary MORTON. Yes, it is.
Senator CASE. If you take out of the individuals pocket $300 or $100 a year more on his energy bills, he is going to be just that less willing to pay out his money, and he is going to be more conservative. Then he is going to save and whatnot.
Even if that money goes into other hands, the Government or whatnot, by reason of an authorized tax increase, doesn't it have a psychological affect that it is bad on the general idea of stimulating the economy through giving people more money to spend?
Secretary MORTON. He is going to have more money to spend, but he is not going to spend that money in other than energy channels, because he sees an opportunity to save some money in energy and he is
And on the other hand, he may want to buy a smaller car, buy insulation for his house, do other things with his money than in the pattern that he is now doing it.
Now, this has got to work over a long time, and we have got to reduce the amount of energy per capita used.
I think the windfall profits' tax is a very essential part of this whole thing, in order that we capture a reasonable piece of that action, when you decontrol something that is controlled.
But if you don't decontrol, you are going to have a consistently increasing inequity, and programs like the equalization program, which now are a disaster, are not going to do the individual citizen any good. Senator CASE. Pardon the interruption, but you are saying that this takes more out of the economy than it puts back? It is a net loss from the standpoint of stimulus?
The CHAIRMAN. That's right.
Senator CASE. And the administration says that the energy program as it lays it out is neutral in the effect upon the economy in that respect. Now that is the argument.
The CHAIRMAN. All I ask is can you give us at the end of the day a breakdown on each item on cost, and deduction, and show the balance?
Secretary MORTON. Cost to whom, sir?
The CHAIRMAN. Cost to the people of this country.
If anyone is thinking, because you increase the price of oil, that it is not going to have an impact on the American consumer and the American business community, it is all going to be kept within the United States, therefore there is no problem
Secretary MORTON. If he keeps using the same amount of oil, you are absolutely right. But if he uses less oil, his current costs are going to be the same.
The CHAIRMAN. Well, that is based on a lot of assumptions.
The CHAIRMAN. Mr. Secretary, all I am asking you is this. Surely the representatives of the administration can submit a bill of particulars of what the added costs are going to be.
I am talking now about the excise tax, how much it is going to take out; both the tariff and the internal tax. How much are all the decontrol costs are going to be, this does affect the price of coal, and the deregulation of all these items including that gas? Then we want to find out whether it is a plus or a minus showing the cutbacks.
You will agree that it isn't just people that are on the other side of a political fence. Here is the morning editorial, and the whole Nation is in an uproar over this, and we come up here and we can't get that balance sheet.
Secretary MORTON. If I understand that editorial, Mr. Chairman, that addresses itself to the rate at which all of this takes place, more than the adjustment.
May I ask at this time, Eric Zausner, who has been working with these figures, to take a minute, as we see it, to put it in perspective. Mr. ZAUSNER. Senator, we have these numbers and we will provide them for you.
The CHAIRMAN. Will you give us at the end of the day the balance
Mr. ZAUSNER. But the question, Senator, and the way to look at it is as follows
The CHAIRMAN. And what will that balance sheet show?
Mr. ZAUSNER. That balance sheet will show the following: That the money we collect as taxes, both from decontrol and the excise taxes on both oil and gas, directly raise prices of energy by about $30 billion.
Those $30 billion flow through the household expenditures for energy. Things like toothbrushes go up also.
The total effect is $30 billion. We take that full $30 billion, and rebate it directly to State and local governments, the corporations, and the individuals in reduced income taxes to fully offset the increases that are caused by these taxes.
Now, the question which comes up, and one to be looked at very carefully is, does in fact the taxes we put on oil and gas induce larger price effect for consumer goods than just the tax numbers?
The CHAIRMAN. You are only talking about the indirect impact; the ripple effect.
Mr. ZAUSNER. Yes, sir, there are only two ways that that can happen.
Öne, if something like where we raise the price of oil and gas will in fact coal go up a substantial amount.
The CHAIRMAN. What about airline fares?
Mr. ZAUNSER. Let me finish. There is that possibility also.
With respect to coal and natural gas, the practical realities are, that the long-term contracts that we have, which now cover 80 percent of all coal controlled in this country, will not allow coal prices to go up as a function of oil prices.
In fact, if we look back over the last year we will see that coal prices are not anywhere near the impact we've seen even in the quadrupling of oil.
The CHAIRMAN. Your figures include the ripple effect, the indirect cost. Have you added those?
Mr. ZAUSNER. Yes, sir, we calculated an average effect of approximately $275 per household, that included all the indirect affects not just the direct affects that increase electricity, or oil, or gas.
The CHAIRMAN. Why in the world wasn't it in this white paper, when the administration was aware that we have been debating all week in the Senate, editorials are being written?
Mr. ZAUSNER. Senator, the number is in there. It says, we collect $30 billion. Those are the costs to the consumers from our tax measures, and that $30 billion is rebated and it shows on the following page the three sectors which bear those costs: Consumer, industry, and State and local governments.
The CHAIRMAN. So, you end up with no take out of economy at all? Mr. ZAUSNER. That is the whole idea of the proposal sir.
The CHAIRMAN. Is that what your testimony is, that when you add up all these costs; excise and price increasing, indirect cost you end up with a net washout?
Mr. ZAUSNER. There is no money taken out of the economy.
I thought that the administration was trying to stimulate the
Mr. ZAUSNER. The $30 billion that we take out we give all back, and in addition to that, as Jerry Parsky mentioned, we further give back on top of that $30 billion, $16 billion additional for a 1-year economic stimulus.
So, the number, in fact, nets out to a $16 billion stimulus to the economy.
The CHAIRMAN. So, you are saying that $30 billion includes all of the direct and indirect costs, all of the excise taxes, both tariffs and internal, all of the decontrol costs. That adds up to a total of $30 billion and no more?
Mr. ZAUSNER. Yes, sir.
The CHAIRMAN. There is where your economist finally disagree. They come out $50 billion to $60 billion.
Mr. ZAUSNER. Senator, as I understand it there has only been one study that indicates a number of $50 billion, and that is Congressional Research Service.
If one will compare that study with the work done, which we have presented in this calculation there are two things that one will notice.
One, the Congressional Research Service estimates that the consumer cost for the oil program are going to be identical to the consumer cost estimates made by us in this program. The only difference is in
One, with respect to the cost increases in natural gas. We really think that the estimates by the Congressional Research Service completely overestimates how much gas will be decontrolled.
The second main factor, which makes the Congressional Research number higher than ours, is that they include the cost of increase utility cost, for air pollution control, and for building new plants, technical term called construction work and progress.
I think I would argue that the cost of environmental control, which we want to allow to pass through, will not affect the cost of this program, but because of our environmental program which has to be borne in one way or another.
And a careful comparison of that $50 billion with that number shows that they are really quite consistent.
The CHAIRMAN. You get your chart up here, because we are going to have a lot of other people being asked the question, so we can get the facts.
Secretary MORTON. One of the things that I think we need to have from you. Senator, is a definition of what you mean by all cost. We are talking about costs that are taking out of the economy by tariff and excise taxes, and windfall profit taxes, and then put back through refunds.
Now, we are talking about adjustments within the economy. Adjustments like the price of a toothbrush, or a price of a petrochemical.
The CHAIRMAN. Well, the gentlemen has just conceded that he has included the indirect cost, and the cost of a toothbrush is an indirect cost.
Mr. ZAUSNER. That is included in the $30 billion.
The CHAIRMAN. I asked for that and he said that it is included.