ROANOKE TIMES

                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: THURSDAY, March 25, 1993                   TAG: 9303250595
SECTION: EDITORIAL                    PAGE: A-14   EDITION: METRO 
SOURCE: CHARLES J. DiBONA
DATELINE:                                 LENGTH: Medium


ENERGY TAX WILL WEAKEN THE ECONOMY

IN A March 2 commentary, "Big Oil's concern for jobs is new," Marilyn Geewax ridiculed the American Petroleum Institute's opposition to President Clinton's proposed BTU energy tax as a "joke" based on her conclusions about our views.

Ms. Geewax wrote that as API's president, I "vigorously defended" the gasoline price hikes that took place when the Persian Gulf War broke out in August 1990, and "never showed an ounce of concern for American workers."

I was just as concerned back then as I am now about the effect of higher gasoline prices on jobs and the economy. The difference is that during the Iraqi invasion of Kuwait the oil-price jump was worldwide and beyond our control, whereas now the Clinton administration is proposing a tax and price rise that only would affect American consumers and American-made products.

The problem is that she jumps to conclusions and misunderstands how markets work. If Ms. Geewax were to call me today, I might visit with her about the price of iceberg lettuce. Why? Because it would illustrate some things about how prices come to be. At the supermarket, lettuce is $1.99 a head - double what it was two weeks ago. The reason? Destruction of some of the winter lettuce crop by the heavy rains and resulting flood in the Gila River Basin in Arizona, and the threat of further damage to tens of thousands of acres of farmlands. This disruption of the lettuce supply caused the market to react, and prices went up, including lettuce already in the stores, because grocers understood the expected future harvest will be down and prices will go up. A classic case of supply and demand.

So it was at the time of the war. Kuwait's oil fields had been captured, its oil was out of the world market, and Iraq was seen as a real threat to the oil supply from Saudi Arabia. The price of oil shot up overnight all over the world. At the local service station the operator, typically a small-business person, knew that the price of the next truckload would be higher, and therefore increased the price of gasoline to have money on hand to pay for it.

At wholesale markets gasoline prices did rise, but as soon as traders became confident that the presence of U.S. military forces removed the threat of a supply disruption from Saudi Arabia, oil prices plummeted, as did petroleum products. And the reaction of consumers to the higher prices was to practice fuel conservation, not to hoard and not to "top off" their tanks in their cars. There were no gasoline lines at service stations. And when prices at retail dropped, some stocks that were bought at higher prices had to be sold at the new lower price.

Every governmental inquiry into pricing during that period, I should note, resulted in findings that the higher prices were due to the forces of a free market and that no laws were violated.

As to Ms. Geewax's comments about our concern for workers: We in this industry know very well the pain of job losses. We've gone from a high of 920,300 workers in the exploration, production and refining sectors of our industry in February 1982 to 448,300 last month. That is a loss of 472,000 jobs in the past decade, due largely to government policies that block oil and natural gas development on government lands where billions of barrels of oil and trillions of cubic feet of natural gas are believed to exist. Because of those unwise policies, our American oil companies are being forced to invest more and more, year by year, in projects overseas.

Now we face a new BTU energy tax that is more than twice as great for oil than the tax on coal and natural gas. While we strongly support President Clinton's goals of improving the economy, creating more jobs for Americans and reducing the deficit, we also strongly believe that this tax will lead to results that are just the opposite of what he wants to achieve. Large energy taxes reduce economic growth, make American industries less competitive internationally and cost jobs. The proposed BTU tax will ripple through the economy and impose a cost on the average family of four of about $500 a year. We expect it will result in 700,000 lost American jobs. Those are the reasons for our opposition, and we don't apologize for them.

What should the nation do about the deficit? We believe government spending must be cut, and if additional revenues still are needed, a broad-based consumption tax such as a European-style value-added tax (covering our products, just like everyone's else's) would be the best solution to our deficit and debt problems. The administration has said that if people have a better idea, they should put it forward. We believe the VAT is a better idea.

Charles J. DiBona is president of American Petroleum Institute in Washington, D.C.



by Archana Subramaniam by CNB