The Reagan administration says its proposed tax preferences for the oil and gas industry are needed for national security reasons, but a number of energy economists question whether such preferences are effective.
Since President Reagan sent his new tax-revision plan to Congress last week, Treasury Secretary James A. Baker III and other administration officials have defended the oil and gas tax preferences as vital to keeping the industry healthy and helping to cushion the impact of a cutoff of foreign oil.
But a number of energy economists say the administration argument is incorrect.
"There's no national security justification for those benefits," said Robert S. Pindyck, professor of applied economics at the Massachusetts Institute of Technology. "There's no good economic reason to have them."
According to this view, stimulating domestic production is the last thing national policy should do in a time of glut. Economists who support this argument say price, not tax preferences, is more effective in stimulating production. And, they say, such tools as a tariff on imported oil or the strategic petroleum reserve are more useful in helping safeguard U.S. energy security.
The administration, however, has proposed stopping the flow of oil into the strategic petroleum reserve at the end of this fiscal year.
"The question is why, if the nation needs a reserve in case of cutoff, do we have tax laws that encourage drilling?" asked a congressional aide. "You would think our policy would be exactly the reverse. You'd think that if prices were low we'd stock up on foreign oil while it's plentiful and cheap. It's the drain-America-first argument."
Baker said Sunday that there are "strong national security considerations involved here that do not pertain in other areas." Deputy Secretary of the Treasury Richard G. Darman, referring to the Arab oil embargo and gasoline lines of 1973, said, "We believe that incentives for energy production domestically are key to avoiding such problems."
The Treasury Department's original tax-simplification plan, issued last November, proposed ending two preferences important to the oil and gas industry. Independent producers no longer would have been allowed to deduct a flat percentage of income every year to cover depletion, and producers would have had to write off such drilling costs as labor over the life of the well, rather than in one year.
The Energy Department and industry officials contended during the rewriting of the plan that those changes would reduce drilling of new oil wells by half next year, from 60,000 to 30,000, and cause domestic production of oil and gas to fall by the equivalent of 1 million barrels a day, a 4.2 percent decline.
Industry trade associations commissioned at least three outside studies, plus their own documentation, to make their case.
The final version of the plan retained fast write-offs for drilling costs as they are in current law, unless those deductions dropped the producers' tax bill below a minimum rate, and permitted owners of small wells to continue taking the percentage-depletion deduction.
Industry officials say the preferences are crucial to reviving oil and gas exploration and say the president's proposals are inadequate.
"We're drilling at 40 percent of where we were in 1981," said Lloyd N. Unsell, executive vice president of the Independent Petroleum Association of America. "If we don't turn that around, reserves will drop precipitously and dependence will rise correspondingly . . . . We're in severe trouble if we don't turn around this recession the industry has been in."
The experience of recent years suggests that exploration is closely tied to prices. Reagan's decision in early 1981 to fully decontrol domestic oil prices helped spark a sizable increase in new drilling. The number of operating land rigs, for example, rose 36 percent from 1980 to 1981.
Worldwide oil prices then began falling in the face of slumping economic activity, and, between 1981 and 1983, the number of operating rigs fell more than 40 percent.
"If prices are growing and the future looks bright for investment, it's going to happen whether you have these write-offs or not," said Douglas R. Bohi, senior fellow at Resources for the Future, a think tank.
Bohi and Pindyck acknowledge that doing away with such tax preferences as intangible drilling-cost deductions would cause short-term industry disruption. But they said a tariff on imported oil would keep the industry healthy through higher prices, while encouraging development of alternative sources. Meanwhile, the revenue collected could be used to keep filling the strategic petroleum reserve.