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Gas tax idea faces challenge; Senate ditches divisive Btu tax.

Senate Democratic leaders scrambled to replace President Clinton's proposed $71 billion Btu energy tax last week with a modified gas tax, further spending cuts in federal entitlement programs, and cuts of some of the investment incentives--including enterprise zones--proposed by the administration and passed by the House. But almost every alternative appeared certain to raise opposition, threatening passage of an economic recovery and deficit reduction plan.

Tentative compromise, not endorsed by the White House, would call for a federal excise tax on gasoline and other transportation related fuels of about nine cents a gallon--just about two cents more per gallon than the Btu tax would have cost. According to an aid to Sen. John Breaux (D-La.), a key player in the negotiations, the proposal would exempt those fuels and users--including state and local governments--currently exempt from the motor fuels tax.

The action came as Senate leaders reported to the President they did not have enough votes to pass his plan if the $71 billion Btu energy tax were included. The revenues to be raised from the Btu tax are a critical component of the President's $500 billion, five year deficit reduction and economic recovery plan. Last Tuesday evening, the White House gave Senate Democrats a green light to try and reach consensus on an alternative plan which would combine a different form of energy taxes and additional spending cuts.

The Senate Finance Committee faces a Friday deadline to reach agreement among its eleven democrats. All twelve Senate committees charged with completing their respective portions of the $343 billion deficit reduction or reconciliation package are required to complete action by June 18. With all nine Republicans on the twenty member, key tax writing committee indicating an unwillingness to support any deficit reduction package with taxes offered by the president, there is no margin for disagreement among the Democrats.

NLC President Don Fraser urged all local leaders to support the efforts by Senate Majority Leader George Mitchell (D-Maine) and Senate Finance Committee Chairman Daniel Patrick Moynihan (D-N.Y) to reach a consensus.

"The President asked every American to make a commitment and contribution, not just to help reduce the federal deficit, but also to change the direction of our country away from borrowing, toward investment in our future. The success of special interests seeking exemptions from participating in that effort made the Btu tax more and more unfair to cities and towns and appeared to be heading the Congress back on the road to gridlock.

"We cannot let that happen. Our membership voted to endorse an economic recovery plan and called for cuts in defense and entitlement spending and for new tax revenues. We understood that everyone would have to be a apart of making this happen, and that if some interests refuse to help, the entire effort would be jeopardized. As long as all of us understood everyone was contributing, we perceived the process as fair and the outcome as critical to the future of our communities.

"All of us now have to balance what we are willing to do to bring about change and to changing more than a decade of increasing deficits and mandates."

Tentative Agreement

The emerging Democratic compromise envisions raising about $50 billion from the transportation fuels tax, about $20 billion less than the Btu tax would have raised over the five year period.

All of the tax revenue would be devoted to deficit reduction; none would go into the federal Highway Trust Fund.

TO make up for the difference, and to pay for other adjustments the Committee is likely to adopt, the Finance Committee was considering further changes to get more Medicare savings, eliminate the $5.2 billion in tax incentives, enterprise and empowerment zones in cities and towns, reduce the proposed increases in the earned income tax credit. (EITC), and limit new small business tax incentives adopted by the House.
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Title Annotation:Pres Bill Clinton's budget plan
Author:Shafroth, Frank
Publication:Nation's Cities Weekly
Date:Jun 14, 1993
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