IN ITS ANXIETY to get the energy legislation through Congress, the Carter administration is inching toward a very bad compromise. It is considering a plowback provision for its proposed tax on crude oil. "plowback" is a euphemism for a clause that would return part of the tax to the police who paid it. In this case it would go back to the oil producers, presumably earmarked for the expansion of oil production.At first glance the idea seems reasonable enough, and it's popular in Congress. But the plowback is, in fact, a dangerously defective concept that promises several different kinds of trouble for energy policy and for the national economy as a whole.
First of all, the plowback would reward the wrong people for the wrong things. If the administration is going to introduce a fat new oil subsidy, you might think that it would be aimed explicitly at future discoveries. But the crude-oil tax is to be levied on current production, and most heavily on the cheap oil from the oldest wells. Merely returning a share of the tax to the payer would give the biggest benefit to the companies with the largest current production from older wells.
Some oil companies make a specialty of exploration. Some prefer to buy other people's discoveries. If there are to be gigantic new federal tax incentives, they ought to be linked directly to new finds and the people who find them. It's not enough - not nearly enough - to say that the rebated tax money would have to be used for exploration. That would give a company the same subsidy for incompetent searches as for highly successful ones.
Tremendous sums of money are at stake here. The crude-oil tax, as the administration proposed it and as the House passed it, would raise $11.5 billion a year by the time it became fully effective in 1980. There are hints and whispers in the air that the administation might permit Congress to rebate as much as half of it tot the companies that pay it, under the cover of that reassuring term "plowback." If companies were to spend that money slowly and carefully, it would pile up in the U.S. Treasury at a rate capable of slowing down the entire national economy. If they spent it fast, bidding against each other for scarce equipment and manpower, the result would be another damaging round of oilfield inflation.
The plowback would be bad for competition. It would give this vast subsidy only to the companies with production already flowing to market. It would offer nothing to the new company that wanted to get into the business tomorrow. The new entrant would have to find its own money to compete against the established operators whose exploration costs were being carried, in some substantial part, by federal plowback subsidies. The Carter administration does not appear to have given much thought to the anti-competitive character of the plowback.
The crude-oil tax is crucial to the Carter energy plan. If a sweetener is required to get it past a hostile Senate, there are far more attractive possibilities available. One is to parcel out each year's tax rebates in proportion to the amount of new oil that each company brought in that year. Another and simpler device is to forget rebates altogether and in the future simply let each year's new oil be sold at that year's market price. If there are to be billion-dollar incentives, Mr. Carter and Congress need to consider precisely who gets them, and for what. The essential principle here is to tie any further tax benefit directly to barrels of new domestic oil actually discovered and brought to market.