[TEXT OMITTED FROM SOURCE] on the American economy, a State Department officials told a Senate Banking Committee hearing yesterday.

Julius L. Katz, assistant secretary of state for economic and business affairs, said, however, that if Saudi Arabia boosts its production sharply, as it said it would, that $11 billion drain might be reduced.

Saudi Arabia has been producing about 9.2 million barrels of oil a day and has the capacity to go to between 10.5 million and 11 million barrels a day immediately, a government oil economist said yesterday.

Within a few months, after expanding some pipelines and making some other production adjustments. Saudi Arabia could produce 12 million barrels a day. If it were to do so, other oil producers would have to cut back their production sharply to maintain the higher price.

Eleven members of OPEC raised prices 10 per cent, with only the United Arab Emirates following the Saudi Arabians with a 5 per cent boost.

The Arabian American Oil Co., in announcing the higher Saudi prices, did not mention an increase in oil production by the world's largest oil producer, Aramco did not say when the higher prices ook effect, but presumably it was Jan. 1.

A spokesman for Aramco - owned by Exxon, Mobil. Standard Oil of California and Texaco - said the increases posted by the Saudi Arabians ranged from 3.6 per cent on heavy grade oil to 5 per cent on its choice light.

The Arabian light crude is the benchmark oil on which other OPEC oil prices are based.

Sen. William Proxmire (D-Wis.), chairman of the Senate Banking Committee, said that the federal government ought to cut taxes by $11 billion to counter the drag of the $11 billion boost in OPEC prices. Many economists are convinced that the severe recession of 1974 and 1975 was due in part to the failure of the government to recognize that the five-fold oil price increase since 1973 retarded economiic growth here.