The White House is weighing the use of tax rebates to put back into the economy massive amounts of money it plans to collect in new energy taxes.
These rebates could ultimately take the form of lower sales or Social Security taxes.
This returning, with one federal hand, what another part of the government machinery is taking away would be necessitated by the inevitable - and twinned - inflationary and deflationary consequences of the higher energy prices to be announced in Carter's program on April 20.
Office of Management and Budget Director Bert Lance confirmed yesterday that "there will be an effort made to mitigate the consequences of the energy program, especially in the lower-income brackets."
On the inflationary side, higher energy prices ripple through the economy directly through gasoline and home fuel costs and indirectly in a wide range of manufactured products.
On the deflationary side, if the energy program has a real bite, it could depress the auto, housing, and other industries closely related to energy consumption.
"It hard to do anything effective [to curtail energy use] that won't cause some dislocation and some problems, and therefore we have to do our best to minimize the impact," Labor Secretary Ray Marshall said in a telephone interview.
Higher gasoline and fuel oil taxes are considered regressive because low-income groups must spend a greater percentage of their disposable income on those commodities than do persons in higher-income brackets.
Gasoline taxes pull into the federal treasury an extra $1 billion a year for each penny levied. The administration plan to rebate that tax money by reducing sales taxes for Social Security taxes is a variation of a proposal first made by economist Arthur M. Okun at President Ford's 1974 economic summit, when innovative anti-inflation measures were being sought.
Okun suggested that Congress return energy tax money to the states in proportion to cuts they make in sales taxes. It would, in effect, be a new twist on revenue-sharing, but with a kicker: lower sales taxes would reduce the consumer price index. Okun says, thus curbing the "inflationary ripple into wages or other costs."
Some economists say there are at least two weaknesses to the plan: first, a few states do not have a sales tax. Second, Congress is notoriously reluctant to raise taxes, if the scheme gives local officials credit for lowering other taxes.
A variation on the theme, mentioned by both Marshall and Treasury Secretary W. Michael Blumenthal, could be a reduction in Social Security taxes, thus lowering the cost of doing business and reducing price pressures.
A third alternative with fewer administrative complications would be some form of credit through the regular income tax payment system.
Economist Otto Eckstein of Data Resources Inc. of Cambridge, Mass., says this would favor the urban resident, who relies more on mass transportation than a personal car. But he said it would probably be as effective as a rebate of sales or payroll taxes, although it would not have a beneficial effect on the consumer price index.
Potentially, the amount of rebates involved could run to $50 billion if an administration proposal for a maximum cumulative tax increase of 50 cents a gallon went into effect.
Economists are not agreed on the efficiency of higher gasoline taxes on reducing consumption. Eckstein said yesterday he doubted that anything less than 30 cents a gallon would cut significantly into consumption. Under the administration's program, an initial tax rise apparently would not be more than 10 cents a gallon.
Apart from gasoline taxes at the retail level, the administration is planning a wellhead tax that would wipe out the difference between domestic and world oil prices - involving a potential of another $20 billion a year in rebates.
According to reports, the administration plans to recommend an almost immediate boost in old-oil prices from $5.17 per barrel to $11 a barrel. That would add an estimated $8.8 billion a year to the U.S. oil bill, congressional energy sources said. Old oil is the amount produced at levels yielded by existing wells before 1973.
Then, in approximately two years, $11 oil would be taxes up to the world price of oil delivered here (now about $13.50) which would probably be at least $15 per barrel by then. That would add another $11.7 billion to the price of domestic oil.
Revenues raised by this two-pronged tax would be returned dollar-for-dollar to home heating oil users. For other users, administration sources say, there would be a "progressive" rebate system that would have the effect of redistributing the money to the lowest on the income scale.
Economists say that such a program would add about 1.5 points to the consumer price index as chemicals and other products using petroleum as a raw material go up in price.