Shaping a Price Plan

While the debate over antirecession policy will continue, the Administration has all but decided on its basic approach to a closely related problem: reducing the U.S.'s dependence on costly imported oil. At Vail, Colo., President Ford and his advisers just about buried two widely discussed options. Though many of the advisers favor an increase in gasoline taxes because of its simplicity, none have been able to sell it to Ford, who is apparently opposed to measures that would affect a huge group of consumers--in this case, motorists. Partly for that reason, Ford has also ruled out World War II-style gas rationing.

Another apparent casualty of the Colorado talks was an arbitrary ceiling on imports of foreign oil, which is now flowing into the U.S. at a rate of 7.3 million bbl. a day. The experts found that such a limit not only would bring back the long lines at the gas pumps but would worsen the current economic downturn. Administration predictions show that a "cap" holding oil imports to 1 million bbl. a day would gouge as much as $25 billion out of the gross national product and add upward of 400,000 to the unemployment rolls within a year.

Basically, what emerged from Vail was a general agreement within the Administration to deal with the imports problem through a market approach. In essence, that means reliance on higher oil prices to encourage both a reduction in consumption and a sharp step-up in efforts to develop new domestic sources of crude oil. A rise in prices would be achieved in part through a removal of controls on the cost of domestic crude oil. But the main tool of the emerging Ford program would be excise taxes paid by oil companies on all natural gas and crude oil refined in the U.S. White House advocates of such a tax are persuaded that it would not actually discourage production, since companies would pass most of the increase in their costs on to consumers in the form of higher retail fuel costs. The assumption is that those higher prices would encourage users to conserve energy.

The political difficulty is that an excise tax and price decontrol would both require approval by Congress, which could decide to debate the matter into 1976. Thus the White House is considering kicking off its energy-conservation program with a stop-gap tariff on oil imports that Ford could impose by Executive order. The Administration's program would unfold in three stages:

IMPORT TARIFF. Citing a national security clause in the 1962 Trade Expansion Act, Ford could slap a tariff of $1 to $3 per bbl. on already costly foreign oil. Most of that oil goes to the Northeastern states, where it heats 30% of the homes and fuels 90% of the oil-fired generating plants. To ease the economic impact on those states, the Administration would spread the higher crude-oil costs around the country through the current equalization program. In effect, Western refineries with easy access to "old" domestic oil, selling at a controlled price of $5.25 per bbl., would subsidize Eastern refineries that are dependent on uncontrolled oil from foreign sources or "new" domestic oil--production in excess of a 1972 base period that is allowed to sell at the world price. Through this system, the tariff would translate mainly into a nationwide rise in gas prices of 3-c- or 4-c- per gal. at the pump.

EXCISE TAX. The import tariff would be scrapped as soon as Congress approves excise taxes on oil and natural gas. Administration economists maintain that the energy companies are so flush with surplus oil nowadays that they would be forced to absorb some of the cost of the tax. Yet much of it would be passed on to customers, probably in the form of a rise of 5-c- per gal. or so in the retail prices of gas, heating oil and other petroleum products. An equivalent tax on natural gas would be about 50-c- per 1,000 cu. ft. Through a rebate system that has still to be devised, most of the excise tax revenues (estimated at $10.5 billion a year) would be returned to the low-and middle-income fuel users who would be most hurt. Within a year, Administration economists say, the tax on oil alone would reduce daily consumption by 750,000 to 800,000 bbl.

PRICE DECONTROL. The Administration will pair its request for excise taxes with a plan to strip away all controls on crude-oil and natural-gas prices. Thus the cost of old oil would float up from $5.25 per bbl. to the world market price, now about $11. Interstate natural gas, now controlled at 28-c- per 1,000 cu. ft., would be allowed to rise to uncontrolled levels of intrastate gas, now about $1.25. The resulting surge in oil-and gas-company profits would be cut by a special "windfall profits" tax; it would be channeled back to fuel users in the form of payroll tax cuts or direct subsidies. But retail prices of all products would be allowed to rise as high as they could go. The planners say that oil decontrol would add another 5-c- per gal. increase on retail fuel prices on top of the one caused by the excise tax. The result would be another 500,000-bbl. fall in daily consumption, bringing the theoretical total reduction to 1.3 million bbl. per day--well above the Administration's declared goal of a 1 million bbl. per day cut in fuel imports.

Skeptics in and out of Congress will surely question the Administration's twin assumptions that higher fuel prices really will bring a significant drop in consumption and that they really are needed to spur production. Right now, for instance, what seems to be holding back many oilmen is not the prospect of scant profits but a severe shortage of drilling equipment. In sum, the Administration may have a hard time selling its market approach on the Hill.

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