TIME: Almanac 1995

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<text id=89TT0225> <title> Jan. 23, 1989: Fueling Up A Brawl </title> <history> TIME--The Weekly Newsmagazine--1989 Jan. 23, 1989 Barbara Bush:The Silver Fox </history> <article> <source>Time Magazine</source> <hdr> BUSINESS, Page 42 Fueling Up a Brawl </hdr><body> Would a sizable raise in the U.S. gas tax dent the deficit -- or the economy? "Fill 'er up!" In these days of buck-a-gallon gasoline, millions of Americans belt out those words with relish in filling stations from Honolulu to Hartford. But the cost of that tankful could soon take its biggest leap since the oil-parched 1970s. Reason: a hefty increase in the federal gasoline tax may be coming down the road this year. To an increasing number of politicians and economists, a gas-tax boost would be one of the simplest and most effective ways to reduce the 1990 budget deficit. The idea could quickly gain ground among congressional leaders who are preparing to haggle with the incoming Bush Administration over steps to stanch the red ink. "It seems everybody has decided that a higher gasoline tax is the answer," says Susan Simon, a Washington political analyst for Wall Street's Shearson Lehman Hutton. Not quite. Opponents of boosting the 9.1 cents-per-gal. federal tax are gearing up for a fierce lobbying brawl. On one side stand the influential but unorganized advocates of the gas-tax increase, who range from Federal Reserve Chairman Alan Greenspan to Illinois Democrat Dan Rostenkowski, chairman of the House Ways and Means Committee. They argue that a gas-tax boost -- the proposals span from about 7 cents per gal. to 50 cents -- would be simple to administer and would bring a gusher of new revenues. As fringe benefits, the tax would help the environment and the U.S. trade position. On the opposing side, marching beneath such catchy acronyms as FUEL (Fuel Users for Equitable Levies) and TRIP (The Road Information Program), are some unlikely fellow travelers. Among them: the American Petroleum Institute, which represents big oil companies, and Americans for Democratic Action, a left-wing organization that rates public office holders on their support for liberal issues. Both groups contend that a gas-tax increase would unfairly burden lower-income motorists because they spend a higher proportion of their income on fuel than better-off drivers do. The opponents are joined by state legislators, who fear that a higher federal levy would squeeze their ability to raise more revenues through their own gas taxes (national average: 15 cents per gal.). The tax issue is dividing the regions. Opposition is fierce in sprawling Western states, where some motorists routinely drive 75 miles -- often at 75 m.p.h. -- to shop or see a doctor. According to a study by the American Automobile Association, which strongly opposes an increase, raising the levy would hit Wyoming the hardest of any state. The A.A.A. estimated that a 50 cents-per-gal. increase, which is at the high end in the range of proposals, would cost the typical Wyoming motorist $412 a year. New Yorkers would pay $282 more and Washington drivers an additional $198. Says Doug Todd, a Republican state senator in Arizona: "We ought to have a lynching party standing by, and if that Eastern bunch of spendthrifts gets it passed, hang a few of 'em from the nearest on ramp." The $1.15 trillion budget that President Reagan sent to Congress last week presages the coming battle by pointedly rejecting the need to increase any taxes to cut the projected 1990 deficit of $127 billion to the $100 billion required by the Gramm-Rudman law. Instead, the Reagan budget proposes to accomplish that in part by eliminating 82 federal programs, all of which Congress has defended in past budgets. While Democrats dismissed the Reagan document as "irrelevant," since President-elect Bush plans to submit a revised version by Feb. 20, the incoming Administration is unlikely to embrace a tax increase until it becomes an unavoidable compromise. Along with his broad "read my lips" pledge during the fall campaign, Bush specifically ruled out a higher gasoline levy. Even though an increased tax may be healthy policy in the long run, most U.S. motorists see it as bitter medicine. Americans hold this view even though they pay an average of only 92.6 cents per gal., including all taxes, which is one of the lowest levels in the world -- and below 1950 prices after inflation is deducted. In a TIME survey conducted last week by the opinion firm Yankelovich Clancy Shulman, nearly three-quarters of those polled said they opposed any tax boost to reduce the budget deficit. A nearly equal number acknowledged, however, that an increase seemed likely during the Bush Administration. When asked which tax they would rather see raised if an increase was necessary, 26% favored the gas tax. The measure was second to the untried notion of a national sales tax, which 44% selected. Still, supporters of a gas-tax increase say it has emerged as the best option for cutting the deficit. Each 1 cents per gal. would bring in $1 billion in annual revenue, according to a widely used rule of thumb. Rostenkowski last month suggested a 15 cents-per-gal. increase but would probably settle for less. To ease the burden on low-income motorists, Rostenkowski would provide them with income tax credits. Says Rostenkowski: "I don't think it's as regressive as people make it out to be." Advocates of the tax also point out that by throttling back consumption it would cut pollution and reduce U.S. dependence on foreign oil. Imports accounted for 42% of U.S. consumption last year, the highest level since 1979. Yet the proponents have assembled no real constituency. "This is not a tax that is very popular back home, but what tax is?" says Representative Anthony Beilenson, a California Democrat who since 1985 has introduced two bills to raise the gasoline tax. Both have gone nowhere. The undaunted Beilenson plans to try again in 1989. "The math just calls out for taxes," he says, "and this is one of the simplest ones around." Says John Gore, a Washington representative of British Petroleum: "Nobody's pushing for a higher gas tax, but it seems to have a life of its own." Opponents are well-organized and vigorous. FUEL, which represents 800 diverse associations, last month launched a congressional letter-writing campaign to head off the tax increase before it gains momentum. Participants ranged from the American Ski Federation, which fears a falloff in resort business if Americans drive less, to the National Association of Manufacturers and the National Urban League. Even before FUEL began its push, Congress seemed unwilling to alienate motorists, which in the U.S. is practically everybody. When California Democrat Glenn Anderson introduced a House resolution opposing any increase last year, he quickly picked up 122 co-sponsors. Anderson plans to offer the nonbinding measure again this week. Says a congressional staffer: "The idea is to send a signal that increasing the gas tax is not the easy way to go." Some economists point out that costlier fuel would slow down the economy and boost inflation somewhat. According to a study by the WEFA Group, a Pennsylvania-based forecasting firm, a 10 cents-per-gal. increase would accelerate inflation by about one-third of 1% and cut GNP by $10 billion, or one-fifth of 1%. The firm estimated that the slowdown in growth would lead to 80,000 layoffs in the first year of the tax increase. State legislators maintain that federal fuel taxes should be used only to pay for roads and bridges, as they mostly are now, and not to cut the deficit. Besides, with taxes already ranging from Georgia's 7.5 cents per gal. to Wisconsin's 20.9 cents, state leaders are worried that a higher U.S. levy would restrict their ability to increase their own rates. Georgia Governor Joe Frank Harris has proposed a 6 cents raise in his state's 7.5 cents tax, and last week Governor Michael Dukakis asked for a 6 cents increase in Massachusetts' 11 cents levy to help balance his budget. The tax issue has caused a split among Detroit automakers. Chrysler Chairman Lee Iacocca applauds the increase proposal and calls a reduced budget deficit "good for the whole country." A tax increase could hurt Iacocca a bit less than his Big Three rivals, since Chrysler's fleet of mostly midsize-and-smaller cars gets an average of 27.5 m.p.g., vs. 27.2 for General Motors and 26.6 for Ford. GM Chairman Roger Smith has denounced a higher gas tax as "cruel" and "unfair" and argued that it would dampen auto sales. Ford has straddled the fence. Vice Chairman Harold Poling said his company would support a phased increase of 15 cents per gal. over three years, but only as a last resort for cutting the deficit. That may well be the way in which the gas tax becomes more attractive: by default. "Everything else is worse," says economist Lester Thurow, dean of M.I.T.'s Sloan School of Management. For instance, Congress will be loath to fiddle with personal income tax rates so soon after the landmark Tax Reform Act of 1986. And while additional "sin" levies on alcohol and tobacco will be an option, they would raise far less revenue than a comparable gasoline-tax hike. At the same time, a national sales tax would be a complex experiment that lawmakers seem unlikely to try. The showdown will probably come next summer when Congress and the Administration decide how to meet the $100 billion Gramm-Rudman deficit ceiling. After an extended bout of recrimination and finger pointing, both sides will have to agree to raise taxes or cut some $30 billion to $40 billion from cherished defense and social programs. "It's fairly likely that a modest increase in the gasoline tax will be included" in whatever package emerges, says California's Beilenson. "You've got to have something that's wrapped up with a solution for a bigger problem to provide political cover." If that cover proves secure enough, "gas tax" just might be words that George Bush would pronounce. </body></article> </text>