LegiStorm

Summary:

S. 2285 proposes to temporarily suspend the federal excise tax on gasoline, diesel, aviation fuel, and certain other motor fuels, which varies by type of fuel and fuel use. The suspension would be for at least 4.3¿/gallon. It would begin on April 16, 2000, and last through December 31, 2000. Thus, on April 16, 2000 the gasoline tax would decline from 18.4¿/gallon to 14.1¿/gallon; the diesel fuel tax would decline from 24.4¿/gallon to 20.1¿/gallon. The bill also provides for a suspension of almost the entire federal tax if two conditions are met: 1) the national average price of unleaded gasoline reaches $2.00/gallon or more at any time during that period; and 2) the projected on-budget surplus in the Treasury is sufficient to offset revenue losses resulting from the tax suspension, which appears to be the case if current projections are borne out. If those two conditions are met all taxes would be suspended except the 0.1¿/gallon Leaking Underground Storage Tank (LUST) trust fund tax, which is also imposed on most transportation fuels. Thus, the 18.4¿ gasoline tax would decline by 18.3¿; the 24.4¿ diesel fuel tax would decline by 24.3¿; and the 4.4¿ tax on commercial jet fuel would decline by 4.3¿ (other fuels taxes, but not all, would decline similarly). In essence, most federal excise taxes on fuels would decline to 0.1¿/gallon. If the surplus is found insufficient, the additional suspension would not proceed. S. 2285 is intended to help consumers and truckers offset at least part of the recent increases in fuel expenses, which have increased sharply over the last 11/2 years due primarily to sharp increases in crude oil prices. But it is not clear that, under current market conditions, producers would lower their product prices and pass the savings on to consumers. Should market conditions stabilize prior to and during the suspension period, it is estimated that from 2/3 to 3/4 of the tax cut would be passed on as lower prices to consumers. S. 2285 would reduce motor fuels excise tax collections, but would maintain trust fund revenues for the highway trust fund, and the other two trust funds affected by the proposed tax suspension. Revenues would be maintained by allocating amounts that would otherwise be lost from the suspension from the general fund. S. 2285 may also raise questions about U.S. energy policy, particularly whether a temporary spike in petroleum prices, which has occurred several times in recent history, warrants federal intervention by altering user fees whose revenues are earmarked for services that benefit those that pay the taxes. This is especially the case in view of 1) prices, in nominal terms, are beginning to decline from their peaks; 2) the present economic expansion which has raised real incomes and wealth across the income spectrum and broadly across sectors, and 3) the fact that adjusted for inflation, and despite significant taxes and regulatory burdens, petroleum product prices are still relatively low. Some may also ask questions about what the best focus or target of federal energy policy should be. Should federal policy address rapid petroleum price increases and high petroleum prices as S. 2285 is attempting to do? Should federal policy address low oil prices as it did when it enacted $500 million in loan guarantees in August of 1999? Or should the federal government attempt to stabilize petroleum prices?