Decontrol may shave from $3 to $4 billion off federal budget deficit
Clearly President Ronald Reagan hopes, by ending price controls on oil, to produce more domestic petroleum and generate extra tax revenues for government -- tapping as lightly as possible American pocketbooks.
There are many question marks in that formula, but one thing is certain: Elimination of price controls on domestic oil will pour a fresh wave of tax dollars into US Treasury coffers, both from the windfall profits tax and income taxes on US oil firms.
US Energy Secretary James B. Edwards, calling the tax bonus "a fringe benefit" of decontrol, estimates the Treasury may gain an extra $3 billion to $4 billion this year. Some sources say the total will be more.
This may sound odd for an administration pledged to reduce the tax burden on the United States economy. In fact, Mr. Reagan faces a huge $60 billion deficit in the current 1981 budget. Extra tax dollars will trim that a bit.
Despite their gratitude for the extra revenues, both Mr. Edwards and Treasury Secretary Donald T. Regan oppose the windfall profits tax on principle.
Mr. Regan tells reporters that the Reagan administration plans to "phase out" the windfall profits tax over the next four years.
The picture grows cloudy where other aspects of the Reagan decontrol action are concerned, especially the impact on consumers and on production of oil.
The President's immediate decontrol of crude oil prices, effective Jan. 28, means a raid on American family pocketbooks, but less severe than might have been expected.
Only 15 percent of all oil processed by US refineries remains under controls, experts note, and controls in any case would have disappeared by Oct. 1 of this year.
Removing controls from that final 15 percent -- as Reagan now has done -- could under certain circumstances push up the retail price of gasoline and home heating oil by nearly 10 cents a gallon.
This indeed would be a jolt to millions of families, already coping with record high prices, both for gasoline and home heating oil.
But, says expert Lawrence Goldstein, US refiners may be unable to pass on to retailers the full increase in crude oil prices, "even on the glamour product of gasoline."
"In a market environment where demand is weak and stocks are high," said Mr. Goldstein, of the Petroleum Industry Research Foundation Inc., "consumers may not bear the full brunt of the increase."
Edwards, presenting the Reagan plan to the White House press, said the retail cost of gasoline and heating oil might climb by "3 to 5 cents a gallon."
Last year American motorists burned less gasoline than in 1979 -- 6.6 million barrels a day in 1980, against 7 million the year before. This year, says Goldstein, his organization expects gasoline consumption to drop further, by 100 ,000 to 150,000 barrels a day.
Even under price controls, many retail service stations -- competing for business -- could not pass on to motorists the full profit margin allowed to them.
as for heating oil, says Goldstein, in about a month peak demand will have passed and refiners and jobbers will be rebuilding stocks for next winter.
His conclusion: President Reagan's decontrol action will cause refiners' profit to shrink, retail prices will rise some, but not the full extent feared by some consumer advocates.
Even so, the overall consumer price index, according to Treasury Secretary Regan, may climb by 0.3 to 0.5 percent, as a result of decontrol.
Also, because families will devote a bit more of their income to buying fuel, they will have less money to spend on other things. To that extent, decontrol will exert a slight drag on the economy.
Putting all this together, why has President Reagan chosen now to lift controls, which in any event were bound to disappear by the end of September?
The answer, apart from the additional tax revenue, appears to lie in two words -- production and conservation.
The White House expects higher prices to reduce oil consumption by 50,000 to 100,000 a day -- a more modest figure than that supplied by Goldstein.
To the extent that US consumption drops, American dependence on foreign oil -- already running 24 percent below the level of 1979 -- is reduced.
Some oil executives dispute White House claims that decontrol will spur much extra production, noting that a record num ber of drilling rigs already are in operation.