Leading members of the Senate Finance Committee are considering the use of an oil import fee to help finance "tax reform." Administration officials concerned about the shaky math of the tax bill -- it is supposed to make a lot of people happy but not lose money -- are encouraging them. But it is a terrible idea. In a single stroke it would create a much less progressive federal tax structure and a lovely windfall for the domestic oil industry, while dissipating both the wherewithal and likelihood of reducing the deficit, against the need for which tax reform is a freckle.
It may help to recount a little history here. The tax reform proposal that the president sent Congress last spring involved two tradeoffs. One was lower rates for individuals and businesses in return for fewer preferences. The other was an associated shift of the tax burden back from individuals to business, in effect a further recovery of the too- large business tax cuts of the first Reagan year.
The controlling Democrats on the House Ways and Means Committee were remarkably faithful to this outline. But when time came to vote last December, Republicans complained that the administration bill had somehow become anti-savings, anti-growth and anti-business. The White House itself hedged a little. To win votes of resisting Republicans, the president had to pledge that in the Senate he would press for deeper cuts in rates than in the House bill, and fewer cuts in incentives to invest. He promised to veto any final bill that failed to meet those goals.
The Finance Committee has never been a center of enthusiasm for tax reform as currently defined. Its senior members are authors of many of the preferences the president's proposal and the House bill would eliminate. It is now also under pressure, from the president, to undo some provisions in the House bill that would raise revenue, while accentuating some that would lose it. That is why it needs money -- but the import fee is the wrong way to raise it. By turning to an import fee, the committee would:
1.Be using the moral equivalent of a sales tax on a necessity to pay for lower income tax rates. To ease a tax that falls hardest on the rich, it would impose one that would be felt most by the poor.
2.Be hurting the Northeast, the region most dependent on imports, while helping domestic energy producers. The tax would raise the price of imported energy (or keep it from falling as much as otherwise). That would give domestic producers room to raise their prices, too.
3.Be raising taxes to balance the tax bill instead of the budget. Given the position of the president, there is only so much tax increasing Congress can expect to do this year in the best of circumstances. The committee would be wasting clout. To cut rates, cut preferences. That was a good idea last year in the House. It still is.