PRESIDENT CARTER CALLED last month for a 50 percent tax on the oil-industry profits that will result from the ending of price controls. The heart sinks at the thought of what's happened since then. As the White House's ideas about the precise form of this tax have come inching into view, in recent weeks, it has become clear that they include important limitations and exceptions.
By even the most sympathetic reckoning, the tax would take not half but somewhat less than one third of the profits generated by the first stages of decontrol. The administration's purpose is to provide incentives to the oil producers to produce more. But these incentives are far too large. They are disproportionate to the probability of any great increase in production, or to any rational expansion in exploration.
The Treasury has estimated the gross revenues to oil producers that decontrol will provide under certain conditions. But, the experts say, you can't apply the 50 percent tax to that figure because decontrol will also induce the industry to spend some of that money in ways that are tax-deductible. Then you have to exclude the rise in state taxes. Then you also have to take out the marginal wells, which are to be exempt, and ditto some kinds of exceptionally costly recovery techniques. Eventually, you get down to a residual net profit that is subject to the 50 percent windfall profits tax-but then, of course, the windfall profits tax is deductible from the producer's income tax. That's why the net effect remains well below 50 percent.
But there's worse. The administration's revenue estimates are unrealistic because they assume that the world price of oil either will not rise from last January's level, or will rise only very slowly. In fact, the world price has leaped upward by one third in the last four months, and is still going. It's an anguishing dilemma for Mr. Carter. The higher prices will increase the impact of the windfall tax sharply, improving his debating position. But the administration fears, with good reason, that any official forecast of higher prices will immediately become self-fulfilling. That leaves it defending itself with figures that are both grievously obsolete and adverse to its position.
Congress has an alternative. It can throw out the whole cumbersome, creaking, questionable Carter tax plan and enact a simple severance tax.It would be a flat tax on each barrel of oil, collected from the producer. A reasonable rate would be $4 a barrel, phased in as the controls are phased out. It would have no exceptions, and it would generate some $15 billion a year-which ought to be used to cut the present onerous payroll tax. That eliminates any need for that dubious trust fund. This counterproposal lacks elegance, but it compensates in reliability and simplicity. As Carter should have found out, in energy taxation simplicy is a virtue to be cherished.