WHEN THE HOUSE passed its version of the windfall tax on oil last June, the price of decontrolled oil in this country was around $20 a barrel. The Senate only got around to passing it, in very different form, in mid-December. The House-Senate conference met for two days and adjourned, exchanging warm wishes for a merry Christmas to all. By that time, the price was over $30 a barrel. In the 26 days since then, the price has risen another $2, in response to increases abroad.
This morning the conference on the windfall tax reconvenes, amidst warm expressions of hopes that everyone had a happy holiday. The point for the conferees to keep in mind is that every $1 increase in the price of a barrel of oil means, with the completion of decontrol in late 1981, a rise of $3.7 billion in revenues to the American oil producers.
That is what is meant by the windfall. As the price goes higher, the case for a stiff tax grows stronger.
Why lift oil price controls in the first place? Because it is the fastest way, and probably the only effective way, to show Americans the real cost to their country of this oil and to discourage them from using so much of it. When a barrel of foreign oil is imported into the United States for $35, it means that $35 of American wealth goes abroad to pay for it. But currently, that extremely expensive foreign oil is averaged in with domestic oil that is kept relatively cheap by the price controls. The price to the individual consummer is low, and consumers use the stuff as though it were low. That's the basic reason for this country's growing dependence on foreign oil in recent years, and it's an important part of the explanation for the high American inflation rate. When President Carter decided last spring to proceed with decontrol, it was the right decision.
But decontrol without a serious and well-written windfall tax will vastly enrich one American industry, the oil producers, at the expense of everyone else. Even if there were not further increases in world oil prices, decontrol would mean that the oil producers' total revenues in 1982 will be more than twice as large as in 1979 -- and 1979 was not what you would call a bad year for them. As foreign prices keep rising, U.S. prices and the producers' revenues will rise in step.
There are two especially important points at which the Senate weakened the original House bill. First, the Senate gave a flat exemption from the tax to the so-called small producer -- anyone producing less than 1,000 barrels of oil a day, worth at current prices $10 million a year. There is absolutely no justification for this gross giveaway to a large and loud lobby of extremely well-heeled people.
Second, the Senate cut the tax rate on newly discovered oil to a mere vestige. That rate is crucial because, as other categories of oil are depleted, most American production will be what this bill calls newly discovered oil. Under the Senate bill, if the price of this oil rose to $35 a barrel, the tax would be a piddling $1.43.The oil is the same kind that was being produced and sold a year ago for less than $15. The windfall is coming, and it's real. The question is whether Congress is prepared to levy a real tax on it.