President Reagan's chief economic adviser said yesterday that a sustained decline in oil prices, while beneficial to the national economy, would require a top-to-bottom reassessment of the administration's energy tax policies.
Martin Feldstein, chairman of the president's Council of Economic Advisers, said on "Face the Nation" (CBS, WDVM) that a decline in the price of crude oil to less than $25 per barrel "will have a very substantial effect on the entire taxation of energy in this country."
Every dollar-a-barrel drop in oil prices "raises the federal deficit about $1 billion," Feldstein said and, if the decreases continue, "we will have to go back and reexamine what we want to do about the windfall profits tax, about gasoline taxes, about taxation in general in this energy area.
"I wouldn't rule out any kind of change at this point."
But Treasury Secretary Donald T. Regan said he would oppose any attempt to levy new taxes on oil, either to increase federal revenues or discipline consumers and protect gains made in energy conservation when prices were shooting upward.
The federal gasoline tax is scheduled to rise 5 cents a gallon April 1, and the Reagan administration has proposed a "standby" tax of $5 a barrel on imported and domestic crude oil if needed to reduce budget deficits beginning in fiscal 1986.
"I don't think you would want to increase taxes any more than we are," Regan said on "This Week With David Brinkley" (ABC, WJLA.) "Reason: we are just coming out of a recession. The more you take out of the economy, the less consumers will have for other things. If you increase the price of energy, the less business will be able to spend."
With oil-producing nations dropping their prices and the Organization of Petroleum Exporting Countries scrambling in disarray, Regan, Feldstein and Federal Reserve Board Chairman Paul A. Volcker agreed that the U.S. economy will benefit from reduced oil prices, despite revenue losses to federal and state governments.
They also said financial institutions are equipped to survive any strains on the banking system caused by revenue shortfalls in such nations as Mexico and Nigeria.
"We will have some problems, obviously, in the financial area," Regan said, but on balance the result will be "a much better economy." For every 10 percent the price of oil drops from its former benchmark price of $34 per barrel, he said, "there's about a $10 billion savings that Americans will not be spending on energy."
He also said each drop of 10 percent would produce a growth of one-fourth to one-half percent in the nation's gross national product, not an insignificant amount in a year when the CEA's overall projection for GNP growth is 3 percent. Feldstein said yesterday that he expects a "higher rate of real growth" than 3 percent but declined to give a figure.
Feldstein said there is "no question" that oil-exporting nations carrying large debt--he named Mexico, Venezuela, Nigeria and Indonesia--must "adjust their loan repayment schedules."
He said they will take "a longer time to work their way out of their current debt situation" but said lenders can carry them because of the correspondingly good news that an oil-price decline means for such oil-importing debtor nations as Brazil and Argentina.
Volcker, appearing on "Meet the Press" (NBC, WRC), said "some declines in oil prices are a good thing for the economy." But a sharp decline followed by a renewed rise as demand is rebuilt, he said, "would create some dislocations" in the economy.
He said he would prefer to see "a moderate decline that could be sustained than a very sharp decline only to have it go back the other way again."
He said some additional tax increases will be necessary to reduce the federal budget deficit, but he did not specify what they should be.