59

Mr. VERLEGER. That is right.

Mr. McCrery. But the only thing that we can control today in
this Committee—we have no jurisdiction over the EPA, unfortu-
nately—the only thing we can control in this Committee is the tax,
the direct tax on that gallon of gasoline, and that is what we are
proposing to do something about. As you have just stated, it prob-
ably will be seen to some extent in the price by the consumer. We
do not know to what extent because we cannot control those other
factors. But all in all, I appreciate your testimony. I think it has
been very good. I appreciate Mr. Sherbert’s, as well.

Chairman ARCHER. Mrs. Kennelly.

Mrs. KENNELLY. Thank you, Chairman Archer, and I thank the
witnesses for coming.

Iam right back where I started from when this discussion began
1 week ago, when we were really kind of taken unawares that Sen-
ator Dole decided we were going to repeal this tax. Everything said
here today is true. Mr. Sherbert would reduce it if he could. Do you
pump gas, or is it automatic? Is it self-serve?

Mr. SHERBERT. No, I have a full facility that has bays and pumps
and then we have—a rare one—a classic pumper.

Mrs. KENNELLY. Thank you. I am always for equality, but I still
think men pump better than women pump and I look for a gas sta-
tion like yours. I like full-serve pumps.

Here is what is happening, I think, and would Mr. Verleger and
Mr. Sherbert continue this conversation. Am I right that when the
fuel comes to the rack, the wholesaler goes to the rack and takes
it in the truck and then delivers it to the retailer?

Mr. SHERBERT. That is true, but there are different classes of
trade. I am an Amoco lessee dealer with direct supply by Amoco.
So it does come into Amoco’s terminal. Then Amoco delivers it di-
rectly to me. There are others where there is another class of trade
that would pick up product at the rack and deliver it to either their
own stations or to other dealers.

Mrs. KENNELLY. Am I right, Mr. Verleger, it is not only that Mr.
Sherbert does not control the change in price or the wholesaler who
delivers it to Mr. Sherbert that does not control the change in
price. We have to go back, because we are in a free market society,
back to the rack where, in fact, the tax is paid, am I right?

Mr. VERLEGER. I believe that is correct, yes.

Mrs. KENNELLY. So in a free market society, it is only natural
that the person who paid the tax wants to get that back. Even
though everybody would love to give the consumer a break, there
is no guarantee whatsoever if we repeal this tax that, in fact, the
consumer would get that break. You not only go back to Mr.
Sherbert, who does not make the decision, the wholesaler does not
make the decision, but the person that bought the gas from the
crude originally makes the decision, am I right?

Mr. VERLEGER. I believe that is correct.

Mrs. KENNELLY. This is the exercise that we are going through—
and it is a serious one. Let me tell you, Mr. Chairman, this is very
serious for me. I have the unfortunate position of representing a
State that has the highest gas tax in the United States of America,
so I take this very, very seriously.


25

Wisconsin. I believe he has yielded back the balance of his time,
is that correct?

Mr. KLEczKA. No, Mr. Chairman, I think I ran out of time, but
I would ask unanimous consent——

Chairman ARCHER. You are out of time now, so we will move on
to the next questioner, Mr. Herger.

Mr. HERGER. Thank you, Mr. Chairman.

I would like to inform the gentleman from California, my col-
league, that I will allow him a chance to respond. I found it a bit
humorous, listening to the previous discussion. It was humorous
because of the points that were made. We heard something about
a Medicare cut. I donot know if the gentleman from Wisconsin was
referring to the increase that we had in our budget from $4,800 per
Medicare recipient to $7,200. Is that the cut that the gentleman
was referring to?

The gentleman from California also mentioned he does not hear
anything from his district. Mr. Royce, we are in the same State. My
district is about 500 miles north of yours and very different than
yours. You are in an urban district. 1 am in a very rural, agricul-
tural district. Some of our major industries are wood products,
paper and wood production. The area of my district is larger than
the 10 smallest States geographically, larger than the 5 smallest
States combined, and we do not have mass transit. We do not have
the choice of not driving to work. We must drive. It is not a luxury
to use an automobile, it is an absolute necessity.

You mentioned that the cost of the Clinton tax was $422 per per-
son. President Clintons’ tax increase was the largest tax increase
in our Nation’s history. Let us take this particular 4.3 cents, and
let us put this in perspective. As you mentioned, it is not a user
fee. It goes directly into a growing government bureaucracy here in
Washington. I want to commend my colleague, the gentleman from
California, Mr. Royce, for attempting to roll this back. It is about
time.

I think we need to make sure we do not get lost in the rhetoric
of the big Democrat lie of saying there are cuts when there are no
cuts. We need to know what is really going on. We need to get
down to the point that we are talking about which is real people
and real families, Mr. Kleczka. I do not know if anyone has said
anything to you or if people are telling you——

Mr. KLECZKA. Would the gentleman yield?

Mr. HERGER. No, I will not yield now, but I want to mention to
you——

Mr. KLECZKA. Since you mentioned my name, it would be kind
to yield.

Mr HERGER. Maybe they do not care in Wisconsin that their
taxes are going up so dramatically, but I can tell you——

Mr. KLECZKA. Wally, your State tax is 30 cents.

Mr. HERGER. All I hear——

Mr. KLECzKA. Your State tax is 30 cents, Wally. What have you
done?

Mr. CHRISTENSEN. Mr. Chairman, regular order.

Chairman ARCHER. The gentleman from Wisconsin is out of order
and he knows it. The time belongs to the gentleman from Califor-
nia.


COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois SAM M. GIBBONS, Florida

BILL THOMAS, California CHARLES B. RANGEL, New York
E. CLAY SHAW, JR., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ANDY JACOBS, JR., Indiana

JIM BUNNING, Kentucky HAROLD E. FORD, Tennessee
AMO HOUGHTON, New York ROBERT T. MATSUI, California
WALLY HERGER, California BARBARA B. KENNELLY, Connecticut
JIM McCRERY, Louisiana WILLIAM J. COYNE, Pennsylvania
MEL HANCOCK, Missouri SANDER M. LEVIN, Michigan
DAVE CAMP, Michigan BENJAMIN L. CARDIN, Maryland
JIM RAMSTAD, Minnesota JIM McDERMOTT, Washington
DICK ZIMMER, New Jersey GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa JOHN LEWIS, Georgia

SAM JOHNSON, Texas LF. PAYNE, Virginia

JENNIFER DUNN, Washington RICHARD E. NEAL, Massachusetts
MAC COLLINS, Georgia MICHAEL R. McNULTY, New York

ROB PORTMAN, Ohio
JIMMY HAYES, Louisiana
GREG LAUGHLIN, Texas
PHILIP S. ENGLISH, Pennsylvania
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
PHILLIP D, MOsELEY, Chief of Staff

JANICE Mays, Minority Chief Counsel

ab


119

Congress failed to recognize that the energy content of a gallon of propane is about 75
percent that of gasoline. Therefore, imposing the same tax on propane as on gasoline is
actually very unfair. The tax rate on alternative fuels, assuming the new tax rate on
gasoline of 14 cents per gallon (except CNG) should be as follows: propane {10.2 cents);
methanol (6.9 cents); ethanol (9.2 cents}; LNG (12.0 cents); all with an effective rate of
14.0 cents per gallon.

Congress neither intended to discourage the use of propane nor place it at a competitive
disadvantage. Both the Congress and the President have expressed the intent to achieve
“fuel neutrality” in their alternative fuel policies. Accordingly, good tax policy dictates
imposing a tax on all alternative transportation fuels (except CNG) on a per galion energy
equivalent basis. Such steps would ensure that the congressional policy to encourage the
use of alternative fuels is consistently and effectively implemented,

As you draft the gasoline tax reduction proposal, the Propane Vehicle Council urges you and
your Ways and Means colleagues to incorporate a proposal that ensures that no alternative
fuel pays more federal excise tax than gasoline, and that the government in its tax policy
stays out of the business of picking winners and losers in the alternative fuels area. A level
paying field is all that we in the propane industry feel is necessary and all that we expect.
Itis important that (except for compressed natural gas) your proposal equalize the federal
tax rate on all alternative fuels.

‘The Propane Vehicle Council also urges you to craft @ proposal that ensures that all
alternative fuels continue to contribute to the highway trust fund. We feel that it would be
inequitable if any one fuel were exempt from paying any federal excise tax. We
‘acknowledge, for example that compressed natural gas (CNG) is taxed at a level below that
of propane. We do feel strongly that any reduction in the federal excise tax on gasoline
should at least retain this level of tax and that any vehicle using CNG be required to
continue contributing to the highway trust fund,

‘Mr. Chairman, in developing legislation to reduce the federal excise tax on gasoline, you
have an opportunity to correct an inequity in the tax code that has hampered the increased
use of safe, clean, domestically-produced alternative fuels. We also hope that as you
proceed with the legislation you will ensure that all fuels share in contributing to the
highway trust fund. That way you will have produced equitable tax legislation that makes a
significant contribution to our nation’s energy security and environmental well- being.



68

But as I said, and as Mr. Niskanen said in the same article, it
is unlikely that the consumer would see much of the effect of the
reduction certainly during the summer, and so a substantial share
would go to refiners, yes.

Mr. LEVIN. Let me just talk a bit, then, about the issue of the
dedication of the moneys, and Mr. Fleenor and Mr. Sherbert, you
have referred to that. Was 1993 the first time an increase in the
gas tax was used for general revenue purposes? Do you know?

Mr. SHERBERT. No, I do not believe so. I think that there was an
earlier amount in maybe 1990 and that was temporary and then
came off, or was made into the transportation fund. I do not know
which,

Mr. LEVIN. Mr. Fleenor.

Mr. FLEENOR. I think it was the 1990 bill.

Mr. LEVIN. Right. One-half of the increase went to the General
Treasury. So 1993 was not the first time, correct?

Mr. FLEENOR. The first permanent increase was in 1993.

Mr. LEVIN. But it was not the first time. Five years is not very
temporary. It was not the first time in a deficit reduction bill that
moneys from a gas tax increase were used for deficit reduction pur-
poses, is that not accurate?

Mr. FLEENOR. That is accurate, yes.

Mr. LEVIN. Would you tell me—and by the way, four Members
of this Committee on the Republican side voted for the 1990 bill
that had a gas tax increase, one-half of which went to the General
Treasury, as well as most Democrats. Do you know of any legisla-
tion between 1990 and 1993 that was introduced to repeal that in-
crease or to earmark it?

Mr. SHERBERT. I certainly do not know. I know that was the fig-
ure that we had.

Mr. LEvIN. Mr. Sherbert, let me ask you. Did your association in
those years support legislation to undo the gas tax increase, the
one-half that was earmarked for the General Treasury?

Mr. SHERBERT. No. We certainly would have, but you are right,
we did not, since there was none to support.

Mr. LEVIN. Did you lobby for it?

Mr. SHERBERT. No. We were opposed to the concept from the be-
ginning, and what scared us, of course, was what we actually saw,
that first it was 2.5 cents, then it became 4.3 cents. We thought
the next step was going to be 8 cents or whatever, and that is why
we are very excited today about this coming off.

Mr. LEVIN. The answer is no, your organization did not?

Mr. SHERBERT. No.

Mr. LEvIN. Mr. Fleenor, do you know of any materials from the
Tax Foundation on this point?

Mr. FLEENOR. The Tax Foundation does not support or oppose
specific pieces of legislation.

Mr. Levin. Was there any material that you wrote during this
period on this subject?

Mr. FLEENOR. No. Again, our whole point is that originally, these
revenues were dedicated, and we thought that was a sound prin-
ciple of taxation. Our opposition to it in this instance is, again, that
the money is not going toward highway construction.


79

In addition to the bus companies being in a rather precarious
condition, the bus passengers are the least affluent of the travelers,
so any increase in ticket price, were the companies to pass it on
to them, would affect them very adversely. According to Grey-
hound’s demographics, 44 percent of its passengers have annual in-
comes of $15,000 or under. So I think it is a particular burden on
the inner-city bus companies as well as on their passengers. I have
gone into details of this in my written statement.

I would just thank you very much at this point for the oppor-
tunity.

[The prepared statement and attachment follow:]


15

Mr. Royce. There is definitely going to be a job loss due to the
higher energy costs. When energy costs go up, yes, Americans are
ald olf.

Mr. CARDIN. So in the last month or so, we have lost four or five
times as many jobs as what your analysis of what happened in
1993 shows?

Mr. Royce. Job loss will occur as energy costs go up, that is true.

Mr. Carpin. I am trying to figure this nationwide. I guess it is
300,000, 400,000, 500,000 jobs have been lost in the last 30 to 60
days as a result of energy. I wonder if you have any documentation
that we have lost between 300,000 and 500,000 jobs in this country
during the last month. Gasoline prices do fluctuate a little bit. I do
not really recall a big jump in gas prices in 1993. I must tell you,
I am not aware of any impact on our economy, on jobs, in 1993
with the gas tax.

But you refer to the Tax Foundation, and I guess we will be get-
ting the information from them. I am just curious as to what your
analysis would be. Should we try to control the price of gas in order
to stabilize jobs in our community? Is that what you are suggest-
ing?

Mr. Royce. I am suggesting we not do things which obviously
will boost the price of gas, and increasing taxes the way we have
boosts prices. I know we would like to get away from that fact, but
the reality is that when you tax a gallon of gas at 47.4 cents on
the gallon, you are increasing prices significantly. That is going to
translate through the market.

Mr. CarDIN. I would appreciate if you could try to respond to the
uestion. If, in fact, we reduced this tax by 4.3 cents, and if, in fact,
there is no reduction at the pump, then I take it, as you are sug-
gesting, it will have no positive impact in your analysis on job
growth. I am curious as to whether you would support an amend-
ment to this legislation to guarantee that the consumer gets a 4.3-
cent reduction in the price of gasoline. Would you support an
amendment to this legislation so that we are at least assured it
does not go to the oil companies, that it goes to the consumers?

Mr. Royce. I would be happy to talk with you about an amend-
ment.

Mr. CaRDIN. Good.

Mr. Royce. But the reality is, and the point 1 want to make is
that I think those of us in government at times try to get away
from the fact that as we raise taxes, those taxes are going to be
passed on to the American public. The reality is that tax increases
are passed on when you tax goods and services. But no, I would
be happy to talk with you about that amendment.

Mr. CaRDIN. You have said that before. We have been told many
times that tax reductions to companies are not necessarily passed
on to consumers. That point has also been made by economists and
groups before, that there is not the same passthrough necessarily
of a tax reduction.

What you are suggesting is that the consumer is going to feel
and understand a 4-cent increase in a gasoline price and act ac-
cordingly, and I must tell you, I find that very difficult to believe,
because as I drive down the streets in Baltimore, there is more
than a 4-cent differential between one gas station across the street


74

STATEMENT OF CAROL HALLETT, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, AIR TRANSPORT ASSOCIATION OF
AMERICA; AND FORMER COMMISSIONER, U.S. CUSTOMS
SERVICE

Ms. HALLETT. Thank you, Mr. Chairman. I am Carol Hallett, the
president and chief executive officer of the Air Transport Associa-
tion of America. I appreciate the opportunity to appear before you
and the Committee today.

On behalf of our member airlines, I would like to applaud the
Committee’s proposal to repeal the 4.3-cent-per-gallon transpor-
tation fuel tax. We certainly believe it is the right thing to do. As
you know, repeal of the jet fuel tax on commercial aviation has
been the airline industry's number one legislative priority since it
was enacted in 1993 as part of President Clinton’s deficit reduction
plan.

At the time of enactment, our industry was granted a 2-year ex-
emption from the tax in recognition of the industry's precarious fi-
nancial condition, with losses totaling up to $18 billion since 1990.
Thanks to you, Mr. Chairman, to Congressman Mac Collins and
Congresswoman Jennifer Dunn and the rest of the Committee, an
extension of our industry’s exemption from the tax was included in
last year’s budget reconciliation legislation. Unfortunately, that bill
was vetoed by President Clinton and the airlines joined all other
transportation modes in paying this deficit reduction tax as of the
first of October last year.

Jet fuel prices averaged in 1995 55.8 cents per gallon. They
reached a low of 54.1 cents last July. But since then, they have
steadily risen, with sharp increases in the last several months. Jet
fuel prices in March and going into April, which is the latest avail-
able information that we have, were about 65 cents per gallon, al-
though some have been reported at 70 cents.

Mr. Chairman, U.S. airlines consume 17 billion gallons of jet fuel
per year. Each 1-cent-per-gallon increase in the cost of jet fuel
equals an approximate $170 million per year in additional cost to
the industry. These rising jet fuel costs are certainly a potential for
hikes in our prices, particularly when you add to that the 4.3-cent-
per-gallon tax that we are now paying.

Consequently, the 11-cent-per-gallon increase in jet fuel from the
1995 average level is of very serious concern to the airline industry.
This 20 percent increase in the price of fuel will add $1.8 billion
to our costs over the course of the year. On top of the recent runup
in jet fuel prices, the airlines are now, as I have mentioned, also
paying the 4.3-cent-per-gallon tax on domestic fuel and that adds
another $550 million to our costs.

When we attempt to pass on to our customers this higher cost
in the form of fare increases, we would normally see a reduction
in demand for air travel services. In fact, industry analysts agree
that each 1 percent increase in ticket prices correlates to a 1-
percent decline in travel demand.

The industry estimates that passing on this cost results in 5 mil-
lion fewer passengers a year. This occurs because some passengers
opt to take shorter trips via automobiles or other modes of trans-
portation to other destinations, or when some passengers, particu-


32

Mr. Lewis, being from Michigan, I would vote no on losing our
love affair with the automobile.

This $268 billion tax increase which was passed in 1993, of
which my colleague correctly pointed out initially there was going
to be a BTU tax, and then a 7.5-percent tax increase, and fortu-
nately, the Senate lowered that. It is still a bad tax, but those were
tax increases on the rich. Of course, the rhetoric at the time ig-
nored the gas tax increase and ignored the Social Security benefit
tax increases. But economic studies have shown that that whole
tax package has resulted in $2,600 less personal disposable income
for every U.S. household. That is significant.

There has been a lot of discussion about how this tax decrease
would affect consumers. I wish that same sensitivity on the other
side had been shown when the tax increases were being debated.
But as those who argued this was a tax increase on the rich, it
does not surprise me they question whether the tax decreases
would get to consumers because they underestimated the devastat-
ing impact these tax increases would have on every single Amer-
ican, $2,600 in lost disposable income per household.

Of course, the average growth rate in this country is at about 1.7
percent for the last two quarters. That is far too low. Last month,
the economy only created 2,000 jobs. We should not be satisfied
with that. We should be doing better, and we can be doing better.
The reason we are not experiencing greater economic growth is be-
cause of this whole tax package, of which the gas tax is a part.

Higher incomes and more jobs would occur had the higher tax
rates not been imposed, and this particular gas tax falls dispropor-
tionately on those at lower incomes.

L yield back the balance of my time.

Chairman ARCHER. Mrs. Kennelly.

Mrs. KENNELLY. Thank you, Mr. Chairman.

Mr. Chairman, I want to thank Congressman Royce for coming
here this morning. He gave us an opportunity for opening state-
ments.

But Mr. Royce, I would just like to mention you have had a good
deal of time before the Committee and two questions are still unan-
swered. One is how we pay for this repeal, and the other one is,
I do not think—I may be wrong, but I do not think you gave us
a way to assure that the tax goes back to the consumer so that
they would notice.

Mr. Royce. I shared with you that the legislation would pay for
the reduction of this tax by reducing the budget of the Department
of Energy, and second, I shared with you a willingness to work
with you in terms of that language.

Mrs. KENNELLY. I thank you for that. I have been working on it
for some time, trying to give it back to the consumer, which is all
our objective. It is almost impossible. But if you find a way, let me

OW.

Mr. Royce. Thank you, Congresswoman.

Chairman ARCHER. Mr. Hancock.

Mr. HaNcock. Thank you, Mr. Chairman.

Mr. Royce, I was interested in your last paragraph, when you
say, “For these reasons, I am proposing the termination of unneces-


103

deficit reduction diesel fuel tax paid by freight transporters. Ifthe 4.3 cents-per-gallon
tax were eliminated, but not the railroads’ additional 1.25 cents-per-gallon tax, the
railroads would be the only payers of a deficit reduction fuels tax; clearly Congress could
not allow such an inequity. The 4.3 cents-per-gallon paid by the railroad industry for
deficit reduction totaled approximately $157 million in 1995, for which the railroads
would have had much more productive use, including its own infrastructure investments.
‘The industry also was required to pay another $46 million last year for the additional 1.25
cents-per-gallon tax unique to the railroad industry.

AAR urges Congress to repeal the deficit reduction diesel fuel tax currently’
imposed on the nation’s railroads. Deficit reduction should be accomplished by means
other than burdening the transportation system with additional costs that do not enhance
the efficiency or productivity of the system. It also is critically important that an
evenhanded system of taxes be put in place. The nation's tax and budget policies should
not be used as a mechanism to disfavor one transportation mode against another.

The inequity in current law should be remedied so that the railroad industry
will no longer be required to pay more for deficit reduction than its competitors.

‘Thank you for the opportunity to present AAR’s views on this important matter. 1
‘would be happy to respond fo any questions you might have.


39

v
/ NATIONAL TAXPAYERS UNION

Statement of
David L. Keating
Executive Vice President,
National Taxpayers Union
before the
‘Committee on Ways and Means
U.S. House of Representatives
on the
Proposed Reduction of the Gasoline Tax
May 8, 1996

Mr. Chairman and members of the Committee, thank you for this opportunity to
appear today in support of the proposal to repeal the 4.3 cents-per-gallon motor fuels tax
increase that was imposed by the 1993 tax act

‘The repeal of this tax is the best available means that the Federal government has to
provide real and immediate tax relief to millions of working Americans who are faced with
higher gas prices when driving to work and meet family needs.

I recognize that itis very difficult for those who favor big government to give up
any revenue that could be used to support their objectives. For the past few days, we have
seen their misleading claims in the media that repeal of the tax would mean little to most
people because it would mean a savings of only some forty or fifty dollars per year for the
average family.

Please do not focus solely on averages. Recognize. instead, that averages do not
give an honest picture of the help that repealing the tax would give to those Americans
who:

+ live outside metropolitan areas because they cannot afford high
housing costs;

+ do not have access to modern mass transit systems, or must
commute to or from areas not served by mass transit;

+ must use their cars to drive long distances to work or school; or

+ are in lower income levels where transportation costs use up a
large share of their income and who often drive older, less efficient cars.

‘One recent news account reported the average Savings per family from repeal of
the 4.3 cents tax on motor fuels in D.C. ($30), Maryland ($46), Virginia ($52), and
nationally ($48). ‘The article did not illustrate the tax relief that repeal of the tax would give
to the worker who lives in Frederick, Maryland or Winchester, Virginia who must
commute 80 or 100 miles each day to Washington, or the worker in more rural parts of the
country who commutes even further to work, or the workers who spend hours sitting in
traffic jams on “freeways” in California,

Remember also that the tax that drivers pay at the gas pump is only a small part of
the burden that is imposed on them by a motor fuels tax. A tax on motor fuels is also paid
by those who produce, transport, and supply the goods and services upon which all of us
depend. Thus, taxes on gasoline are reflected in the price we pay for our groceries, our
clothing, our housing and other necessities. Again, those in low and middle income levels
bear a heavy burden because a larger share of their income is used to pay for these
necessities,

Iis easy to see why many who live inside Washington’s beltway or in other
metropolitan areas favor a high gasoline tax. Those who live in the Washington area enjoy


64

have to treat when we pet into the amendment process. So I am
glad that we agree, and I have overabused my time.

Mr. Laughlin.

Mr. LAUGHLIN. Thank you, Mr. Chairman.

I understand before I arrived that my colleague, Mr. Hayes from
Louisiana, stated he was one of six Democrats to vote against this
tax bill in 1993 containing the gasoline tax. Frankly, I think he
was mistaken. I think it was nine, because I was one of the six or
one of the nine that voted against it very much for the reason I
understand Mr. Hayes said. I want the record to be clear that I
was one of those that voted against it.

I am sorry my friend, Mr. Coyne, left, because I wanted to make
this point while he was present. Mr. Fleenor, you were asked by
Mr. Coyne if you would agree that at least the gasoline tax helped
contribute to a reduction in the deficit, and I believe your answer
was in the affirmative.

Mr. FLEENOR. Yes, it was.

Mr. LAUGHLIN. Would you agree with me that that misses the
point that this has been an unfair tax on those American citizens
that, because of where they live, pay an inordinately higher tax if
they live in a rural area, dependent upon their vehicle, than those
who for whatever reason, good or bad, may choose to live in big
cities that have subways, buses, other forms of mass transpor-
tation?

Mr. FLEENOR. Sure.

Mr. LAUGHLIN. Would you say that again, because it was pretty
weak and I did not hear it very well.

Mr. FLEENOR. I would concur, yes.

Mr. LAUGHLIN. So the supporters of this gasoline tax, then,
would you agree with me, are supporting an unfair tax on those
citizens that choose to live in rural America rather than in the
cities?

Mr. FLEENOR. In a sense, yes.

Mr. LAUGHLIN. Either it is fair or unfair.

Mr. FLEENOR. Again, the idea behind the original gas tax was to
set up a user fee, and if people living in rural areas are using more
of the highways, in that sense, it would not be unfair.

Mr. LAUGHLIN. That is the point I wanted to go to next. If it is
going for deficit reduction to reduce the national deficit of all of
America, then would you not agree with me, it is unfair to put it
heavier on those who live in rural America than it is to put it on
those who live in the cities?

Mr. FLEENOR. Again, our criticism of the 4.3-cent tax was that
it broke the idea down of dedicating these revenues to highway
construction.

Mr. LAUGHLIN. The point I want to make is that historically, a
gasoline tax has been paid by those who derive a benefit from pay-
ing the tax, is that not correct?

r, FLEENOR. Right, and we think that is a very sensible idea,
that people who use the roads are paying for them.

Mr. LAUGHLIN. I come from a very large rural area. Would you
be shocked to know that I have a lot of constituents who would not
mind paying a 15- or even a 25-cent gasoline tax if it all went to
safer roads and safer bridges that they utilize?


35

Statement of
Patrick W. Fleenor
Economist
Tax Foundation
before the

COMMITTEE ON WAYS AND MEANS
UNITED STATES HOUSE OF REPRESENTATIVES

on
The Impact of the 1993 Tax Increase on Transportation Fuels

May 8, 1996

Mr. Chairman and Members of the Committee, my name is Patrick Fleenor and I am
an economist at the Tax Foundation. It i8 an honor for me to appear before your committee
today on behalf of the Tax Foundation to discuss the proposed repeal of the 4.3 cents per
gallon gasoline tax.

‘The Tax Foundation is a non-profit, non-partisan research and public education
organization that has monitored fiscal policy at all levels of government since 1937. The
Tax Foundation is neither a trade association nor a lobbying organization. We do not take
positions on specific legislation or legislative proposals. Our goal is to explain as precisely
and as clearly as possible the current state of fiscal policy and the consequences of particular
legislation in light of established tax principles, so that you, the policy makers, have the
information to make informed decisions.

By abolishing the 4.3 cents per gallon gasoline tax, Congress would be acting in
accordance with well established principles of public finance. If these principles had been
applied over the past two decades, American households would face a federal gas tax that is
substantially lower than the 18.3 cents per gallon tax imposed today. Application of sound
principles would also have helped to maintain the Federal Highway Trust Fund as a user fee
type system.

The Benefit Principle and the Federal Highway Trust Fund

‘An established tenet of public finance is the benefit principle. This idea dates back to
‘Adam Smith and earlier scholars of public finance. It states that an equitable tax system is
one in which the beneficiaries of a public service are taxed in accordance with their use of
that service. Such a system creates a market-type mechanism which both forces users to
conserve on their use of the service and provides it with a source of funding.

During the first 13 years of its life, the Federal Highway Trust Fund was an example
of this type of arrangement. Users of the nation’s transportation infrastructure were assessed
a fee, via excise taxes on transportation fuels. These fees were then deposited into a trust
fund and were withdrawn to pay for the construction, maintenance, and operation of
transportation projects. Figure 1 illustrates that from the time of its creation in 1956 until
1969, virtually all of the revenue collected from excise taxes on transportation fuels and


67

ple pay a higher percentage of their income for this tax than
wealthier people do.

Mr. FLEENOR. That may or may not be true, but again, the idea
of a user fee is that people pay for services they use, and we think
that is a very sound idea. People who drive on the highways and
use our transportation facilities should pay for them. It may be the
case that people who drive—the demographics may be such that
lower income people use the highways more. I do not know if that
is true or not. But in that case, we would not find necessarily a
problem with that if it is indeed the case they are using the facili-
ties more.

Mr. ZIMMER. The information I have seen indicates wealthier
people pay one-fourth the relative amount in taxes as a percentage
of their income on gasoline than poorer people who perhaps may
drive less but often use older cars and obviously are earning less
money. So the same amount of fuel tax will be a larger percentage
of their income. Does anyone on this panel have any data that they
can share with me on this?

For those on the minority side of the Committee who are always
showing us distribution tables about the impact of tax cuts or tax
increases on the wealthy versus the less wealthy, I would hope that.
maybe when we consider this legislation, we will have some discus-
sion of the impact of this tax, which I am convinced falls far more
heavily on the poor and the middle class than it does on wealthier
Americans.

I yield back the balance of my time.

Chairman ARCHER. Mr. Christensen.

Mr. CHRISTENSEN. Thank you, Mr. Chairman.

Mr. LEVIN. Mr. Chairman, are you calling on three Republicans
in a row?

Chairman ARCHER. Mr. Levin, I do not show any request from
any other Democrat. If you wish to be——

r. LEVIN. I thought you were going down——

Chairman ARCHER. ts you wish to be on the list, I am happy to
have you on this list. Mr. Christensen, if you will wait 1 minute,
J will recognize Mr. Levin and then we will get to you.

Mr. Levin.

Mr. Levin. I will be glad to wait. I just wondered what——

Chairman ARCHER. That is fine. I just did not have your name
on the list.

Mr. LEviN. Whatever your preference is.

Chairman ARCHER. I would prefer to rotate. Mr. Levin is recog-
nized.

Mr. Levin. I thank you, and welcome to all of you.

Mr. Verleger, in the Post this morning, you are quoted as saying,

The Republican-sponsored solution to the current fuels problem is nothing more
and nothing less than a refiners’ benefit bill. It will transfer upward of $3 billion
from the U.S. Treasury to the pockets of refiners and gasoline marketers.

Does the Post quote you accurately?

Mr. VERLEGER. That was a piece, Mr. Levin, that I submitted to
the Post as an op-ed piece last week when I believed that this was
a 12-month tax reduction, not a 7-month tax reduction. I learned
last night that this tax reduction was, in effect, from, I guess, June
1 through December 31, which would change the numbers.


104

Chairman ARCHER. Thank you, Mr. Harper. You concluded your
testimony precisely as the red light came on, so I compliment you
for that.

All of you are here today to say that you support the repeal of
the fuel tax. You have a little more added to the common request,
Mr. Harper, but all of you basically agree that we should repeal the
4,.3-cent per gallon tax that went on in 1993. But we are told by
other Members of the Committee that none of this will be passed
on to the consumer. Why does it make any difference to you?

Mr. Harper. I would be glad to volunteer on that subject. We op-
erate in an incredibly competitive environment. The railroads since
1980 have become much more productive in many, many ways, and
we have operated in such a competitive environment that, in real
terms, the cost of our services are about one-half of what they were
in 1980.

But about 90 percent of the productivity improvements we have
made and the cost reductions we have made have been passed
along to the shippers, our customers. Eventually they will go on to
the consumers in America because this is such a competitive indus-
try. Our prices have gone down and that has been passed along to
the consumer; that is where our cost reductions, for the most part,
have gone over the past 15 years.

Chairman ARCHER. But the comments by Members of this Com-
mittee to my left have been that you will not get a cost reduction
because none of this will be passed on to you. Therefore, you will
not be able to give anything to your customers. So why should you
be concerned about this?

Mr. Harper. In the railroad industry, we buy both the dyed and
the undyed fuel, and a significant portion of the fuel we buy does
not come through the service station distribution chain. Therefore,
we believe we will realize cost reductions through the major pur-
chases of about 3.7 billion gallons of diesel fuel a year.

Chairman ARCHER. Let me pursue this a little further, because
the Members who assert this argument say that it is not the retail-
ers, nor the distribution system, but the refineries who will simply
increase the price of their refined product by an amount equal to
4.3 cents a gallon, and therefore, there will be no benefit to any
purchaser of the product.

Mr. Harper. It is a complex issue, admittedly, but we believe
that in the competitive environment that we face today, we will see
this happen amongst the many other factors that dictate market
prices in the end.

Chairman ARCHER. Mr. Donohue, did you have your hand up?

Mr. DONOHUE. Yes, sir. I think that those who argue against this
repeal, suggesting we should not do it because it will disappear
some way along the daisy chain and we will never get it, really
ought to understand that, as you indicated before about commodity
pricing, that the price of oil and diesel and eventually gasoline are
going to go up and down with market demands. There is only one
set of constants in this whole business, and that is the taxes that
are imposed by Federal and State governments.

It is clear to me that if you do not repeal the tax, that whatever
happens in the up and down of the price, then the price will be 4.3
cents on top of whatever it otherwise could be. You might well have


45

Market Chaos

A Speech to The
Society of Independent Gasoline Marketers of America

by

Philip K. Verleger, Jr.
Vice President
Charles River Associates
1001 Pennsylvania Avenue
Washington, DC 20008

April 28, 1996

‘Thank you for inviting me to appear at this annual meeting of the Society of Independent
Gasoline Marketers. I am particularly grateful to Leo Liebowitz and Ken Doyle for the invitation
It isa special pleasure to be here in this lovely location

‘These are not, however, lovely times for gasoline marketing business. Recent increases in
prices of crade oil, heating oil futures, natural gas, natural gas futures, and gasoline futures, and in
‘wholesale prices of heating oil and gasoline, have led a number of parties to question to the
market's rationality, The phrase I hear every day is" what's going on?” Recent articles in The
Wall Street Journal and hearings before the California Air Resources Board have created more
smoke than light.

Why all the noise? Consider the following facts, Since December the price of natural gas has
increased from $2 per mef to $14 per mef on spot markets. This winter some consumers of
natural gas in Chicago paid $60/mcf for small supplies of natural gas — the equivalent of $360
per barrel for oil or $8.60 per gallon for gasoline. (Imagine how drivers of natural-gas-powered
vehicles would have felt if they had been forced to pay such prices.) Spot heating il prices rose
from $0.50 to $0.79 per gallon in New York Harbor, Crude oil prices increased by $0 percent
from $17 per barrel in mid-December to $25 43 a few weeks ago. And now some observers —
myself included — say gasoline will be next.

‘While I will refrain from offering a forecast of prices for the summer today, I would like to
talk to you about the factors driving the markets. It is important for you to understand these
factors because they are likely to become a permanent fixture on the landscape — a fixture you
must understand if you want to survive. I will briefly list these factors and then go into more
detail on many of them,

The first critical factor driving prices up is environmental regulation or rather, regulations. In
particular, regulations mandating the introduction of various types of gasoline and regulations that
make it economically dangerous to own storage have limited available supplies and increased
prices,

‘The second factor driving up prices is bad luck, For the last several years, directors of
refining economics at every company I know have hoped that one of their competitors would
suffer an upset, No one wanted their friends to have a major disaster and clearly no one wanted
to see refinery workers harmed. But everyone secretly hoped the supply chain would be
moderately disrupted. This year, the disruptions are happening

‘The third factor is consumption. American consumers are in love with the large utility
‘vehicles that are subject to minimal CAFE standards. They also love speed, and the increase in
speed limits has boosted use, The ETA estimates that the combined effect of these factors may
raise consumption by 2 percent. 1 think growth may be larger if supply is available


87

Bus carriers cannot simply pass on the cost of fuel increases to passengers. Bus
travel is extremely price elastic because of the competition with airlines, Amtrak and
private automobiles. The price of bus tickets cannot increase proportionately to
‘accommodate the actual rise in fuel costs and taxes. The carriers must absorb the cost
increases to keep the passengers on the bus.

(Having said this, 1 do know that as a result of the cost increases and current spike
in fuel prices, some carriers are considering a surcharge on service if there is no relief.
They tell me that repealing the 4.3 cents tax would alleviate their need to add a new
charge.)

Furthermore, the 4.3 cents a gallon tax does not even benefit the intercity bus
industry. Unlike the other federal fuel taxes paid by bus carriers, the 4.3 cents tax goes
into the general fund, and not the Highway Trust Fund. This money is deposited into the
general fund and is not spent on construction, repair or maintenance of the nation’s
highways. The tax simply counterbalances a small portion of the federal budget deficit.

Repealing the 4.3 cents tax at this time will assist the strapped intercity bus
carriers, And whatever you can do to assist us will help our customers.

I thank you for the opportunity to present my views to the committee today, and
I ask that you vote to repeal this tax as soon as possible.


8

the only way you could do that is put on a windfall profits tax, and
I know that would be very difficult and very unpopular and prob-
ably not very productive, but at least it would have guaranteed the
consumer got the benefit of this tax break.

That is all I have to add at this time, Mr. Chairman.

Mr. Matsur. Mr. Chairman, may I make a parliamentary in-
quiry?

Chairman ARCHER. Mr. Matsui.

Mr. Marsul. I do not know if this is appropriate at this time, but
in view of the fact we are going to be questioning witnesses today,
perhaps we can know the structure of the legislation we may adopt
tomorrow, because when we take this matter to the floor, we will
need a revenue offset on the $2.8 billion. I know there will be an
attempt to do that. Does the Chairman believe that will come from
this Committee?

Chairman ARCHER. The gentleman, I assume, was not here, dur-
ing my preliminary comments.

Mr. Marsul. I apologize.

Chairman ARCHER. I stated that the offsets will not come
through this Committee and whatever the “pay fors” are, therefore,
really are not an appropriate subject for deliberation in our hear-
ings today.

Mr. MATsul. Thank you.

Chairman ARCHER. Our first witness is Congressman Edward
Royce of California, a State that has been especially hard hit by an
increase in gasoline prices. We are glad to have you with us today.

Mr. Royce, your entire statement can be printed and entered into
the record without objection. We hope that you will summarize in
your oral testimony, and you may proceed.

STATEMENT OF HON. ED ROYCE, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA

Mr. Royce. I appreciate that, Mr. Chairman, and I will do so. I
want to thank you, Mr. Chairman, for holding this hearing.

I do want to point out that in California last month, the price
of gasoline did reach, in some parts of the State, $2 a gallon. The
price increase is the result of many factors. There is some question
about what we will be doing about these increases, but there is one
factor I think this Congress is partially responsible for, and I think
government is partially responsible for, and the American public
understand, and that is the cost in taxation.

Ona gallon of gas in California right now, it is 47.4 cents on the
gallon. I think that is something the American people understand
we could do something about if we wanted to, and that is exactly
what this bill of mine, H.R. 3375, does. It repeals the 4.3-cent-per-
gallon Federal gasoline tax imposed by this administration and by
the prior Congress on the American public.

At a time when we in Congress are trying to put money back into
the pockets of American families and recharge the Nation’s econ-
omy, gasoline excise taxes are at an all-time high. In the last 10
years, the Federal gasoline tax more than doubled, from 9 cents to
18.3 cents per gallon, and the same happened at the State level.

I have shared with you California’s figures, 47.4 cents on every
gallon. According to the Tax Foundation, that tax burden works out


EXAMINING THE IMPACT OF THE 1993 TAX
INCREASE ON TRANSPORTATION FUELS

WEDNESDAY, MAY 8, 1996

HOUSE OF REPRESENTATIVES,
COMMITTEE ON WAYS AND MEANS,
Washington, DC.
The Committee met, pursuant to notice, at 10:09 a.m., in room
1100, Longworth House Office Building, Hon. Bill Archer (Chair-
man of the Committee) presiding.
{The advisory announcing the hearing follows:]

(D


42

Mr. HERGER. Thank you very much, Mr. Keating.

We will now hear from Philip Verleger, vice president of Charles
River Associates.

Mr. Verleger.

STATEMENT OF PHILIP K. VERLEGER, JR., VICE PRESIDENT,
CHARLES RIVER ASSOCIATES

Mr. VERLEGER. Thank you, Mr. Chairman. It is an honor to ap-
pear here today. I note that I received the invitation at about 5
o'clock yesterday afternoon, and so my testimony is very brief. I
have attached a speech that I gave earlier this month to SIGMA,
the Society of Independent Gasoline Marketers, explaining my in-
terpretation of recent events in gasoline markets.

I should say I appear as an individual and the views I express
are my own, not those of Charles River Associates, an economic
consulting firm. I have also served in the past at the U.S. Treas-

ry, and my primary business is as a petroleum economist and con-
sultant to the petroleum industry.

I am here to comment solely on whether the consumer will re-
ceive any benefit from a reduction in the 4.3-cent-per-gallon gaso-
line tax. As I explained in the speech to the Society of Independent
Gasoline Marketers, the increase in the price of gasoline is due to
a series of facts, almost all entirely unrelated right now to the cur-
rent gasoline tax.

The increases are caused by regulations imposed by the U.S. En-
vironmental Protection Agency, which have almost criminalized the
distribution of gasoline. The higher price of gasoline today is sub-
stantially due to EPA regulation.

The increases in price also stems from the fact that we have had
a series of serious problems at U.S. refineries after a number of
years of good luck.

The increase in gasoline prices recently is due to the fact that
consumption has risen, in part, because consumers have shifted to
much larger vehicles.

It is my conclusion that over the next 3 months, there is nothing
Congress can do to affect the retail price of gasoline in most re-
gions, because it can neither increase the supply of gasoline nor re-
duce its consumption. Had EPA not issued regulations that made
it very difficult to import gasoline, we could import gasoline in larg-
er volumes and that might bring down the price. But essentially,
the supply now is inelastic.

I note that the chairman of Atlantic Richfield Co. said this week
at the stockholder meeting that he was not sure a cut in the gaso-
line tax would be reflected in lower retail prices.

I am concerned the temporary cut in the gasoline tax would lead
to uncertainty in financial markets due to the concern in their mar-
kets over the budget deficit. I can envision some increase in inter-
est rates in the event of this particular tax cut.


73

Chairman ARCHER. Will the gentleman yield to me for a little bit
of his remaining time?

Mr. Hancock. Certainly.

Chairman ARCHER. What I am picking up from this is that
whether it is jobs, which may be lost but there are more jobs cre-
ated, or whether it is the price of gasoline and if it goes up or
down, it seems to me it is compared to what? If you say the price
of gasoline is not going to go down compared to what it is today
if we remove the 4.3-cent gasoline tax, that could very well be true.
The price of gasoline might even go up if we remove the gasoline
tax if market forces happen to be coincidentally driving the price

up.

Therefore, I think it should be very clear when we say the
consumer will not realize it; that we consider whether the overall
price of gasoline determined by market forces, which Mr. Verleger
adequately and appropriately explained to the Committee is mov-
ing up or down.

It is a fact that the tax is not collected at the refinery. The price
of gasoline is set at the refinery by market prices, again, which de-
pend on environmental regulations, what the market supply is
doing relative to demand, and so forth. The price then goes to the
terminal, where the tax is added.

If it goes to the terminal and the tax does not have to be added,
Mr. Sherbert will not see that tax in the price of the product that
he receives. It seems very clear to me that you will automatically
see a reduction compared to what it otherwise would be, not nec-
essarily compared to what the price is today.

I thank all four of you for your testimony today and we do have
to go vote. This completes this panel and you are excused. I will
say to the Committee and to the next panel, we will try to come
back as quickly as possible after the last 5-minute vote.

Thank you very much.

{Recess.]

Chairman ARCHER. The Committee will come to order.

My apologies to our next panel of witnesses. If you will take
seats at the witness table, we will commence and try to get you out
of here as soon as possible. If we move rapidly, before any other
Members get here, we can do that pretty quickly.

I welcome all of you to the Committee. ] am sure most of you lis-
tened to the previous exchanges, so you will be a little bit prepared
about what we will be discussing.

I would like to start off with Hon. Carol Hallett. Carol, if you will
identify yourself for the record, you may proceed.

Let me first say that, without objection, your complete state-
ments will be entered into the record in writing. If you will attempt
to summarize within a 5-minute period for your oral testimony, we
would appreciate that.

Ms. Hallett.


82

By repealing the 4.3 cents fuel tax for all modes, bus, air
and rail, Congress would begin to restore the competitive balance
in intercity passenger transportation markets across the modes.

Highway Trust Fund Diversion

Since the inception of the Interstate Highway system in 1956,
all federal fuel taxes were paid into the Highway Trust Fund and
then disbursed to the states for highways and bridges. Highway
users, including the intercity bus industry, were willing to pay
the federal fuel taxes an investment in the nation’s
infrastructure. This trust fund system has provided a nationwide
highway system that has played a critical role in the economic
development of this country and contributed dramatically to the
mobility of Americans.

The trust fund concept, however, was breached in 1993 by the
Omnibus Budget Reconciliation Act (OBRA), which imposed the 4.3
cents per gallon federal fuel tax but diverted the revenue to the
general fund to reduce the size of the federal budget deficit. Not
a nickel of this tax revenue goes to construction, repair or
maintenance of the nation’s highway system.

If the highway system were in adequate repair, this diversion
might not present such a critical issue to the intercity bus
industry and other highway users. But by any measure, the
infrastructure of highways and bridges in this country is
deteriorating, and the trust fund spending is falling farther
behind investment needs every day.

ABA believes that all revenues from federal fuel taxes on
highway vehicles must go into the Highway Trust Fund. This will
ensure that the investment in our nation’s highway system does not
fall prey to short term attempts to reduce the federal deficit.

For all of these reasons, it is time for Congress to repeal
this mistake made in 1993.


EXAMINING THE IMPACT OF THE 1993 TAX
INCREASE ON TRANSPORTATION FUELS

HEARING

BEFORE THE

COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS
SECOND SESSION

MAY 8, 1996

Serial 104-61

Printed for the use of the Committee on Ways and Means

cs

U.S. GOVERNMENT PRINTING OFFICE
37-172 CO WASHINGTON : 1997

For sale by the U.S. Government Printing Office
‘Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

ISBN 0-16-054165-4



108

Maybe by me saying that—and I am sure Mr. Harper and Carol
Hallett and others would have the same interest—by me sayin;
that, we are sending a message that it damn well better get passes

on.

Mr. NEAL. I think that is the point the Minority in this Commit-
tee tried to raise this morning, and if we were not very glamorous
in the manner in which we presented it, I think, legitimately, that
is the question we wanted raised. We thank you for the answer
that you have given.

Thank you, Mr. Chairman.

Chairman ARCHER. Let me just piggyback very r quickly on that,
if I may. There are 200 companies that produce different brands of
gasoline in this country, 200. To say that competition, when costs
are reduced by 4.3 cents a gallon, will not force that price down is
to say we do not believe in the free enterprise system in any way,
shape, or form.

This same argument could be made over and over again, relative
to every aspect of the free enterprise system, including the busi-
nesses that you ple represent; that there must be government
to come in and dictate to you what your pricing must be, because
if your costs go down, all of you are going to get together and keep
your price up. Now, you know that will not happen, and you know
with 200 different manufacturers in this country that it will not
happen there, either.

Mr. Collins.

Mr. NEAL. Mr. Chairman, could I quickly respond?

Chairman ARCHER. Sure.

Mr. NEAL. Thank you. We subscribe fully to the free enterprise
system on this side. We just believe that from time to time it needs
a bit of a nudge.

Chairman ARCHER. Mr. Collins.

Mr. CoLuIns. Thank you, Mr. Chairman.

As the Chairman knows, as well as Mr. Donohue and others, I
have been in the trucking business now for a number of years.
Back early in my business efforts, I used to go to Atlanta on rainy
days and go by the Mack truck used truck lot and kick tires, wish-
ing I could buy another truck. I never will forget the used truck
manager asking me one day, “Do you know what the biggest cut-
throat in the world is?” And I said, “No, sir, I do not believe I do.”
He said,

It is a guy with a used truck, because he will cut prices and he wil] do everything
he can to get a load and in 90 days, he will give up his truck because he cannot
make the payment. He did not get enough for hauling the load.

I never have forgotten that.

Mr. Bowman, I find with interest the fact that you said that you
buy 8 million gallons of fuel annually and that the 4.3 cents is
equivalent to $344,000 a year. Before leaving home Monday, I
stopped by my trucking company office to see my son. He was sit-
ting behind the desk with the checkbook open. I was afraid to ask,
and did not ask, what is the price of fuel, because I knew when he
was looking at that checkbook, he was looking at making some pay-
ments on that particular day.

The $344,000 you mentioned could be used to buy additional
tractors or to make additional payroll. It also could be used to cover




109

red ink in a checkbook because of the increase in fuel prices, is that
not true?

Mr. Bowman. Right.

Mr. CoLLins. Mr. Donohue was asked about the number of
trucks that sit still. It is very difficult to judge and determine how
many trucks sit still, because oftentimes, as Mr. Donohue says,
when the bill comes due to pay that fuel bill, they may not have
the money. The truck may sit still for a few days, but I guarantee
you, that guy is going to try to find some way to get rid of that
truck or some other person to operate it. So there is no definite
way to determine or measure how many trucks are sitting still be-
cause of the fuel crisis.

I look at it this way. There are two pools of money in this coun-
try. There is a public pool and there is a private sector pool. We
take from the private sector pool to make the public pool. If we
take 4.3 cents less from the private sector pool to put in the public
pool, that means it remains in the private sector.

In viewing just the business cycle itself, consumers and pur-
chasers, no matter what level of business it is, that money is going
to stay in that private sector and it is going to soon make the full
cycle and everybody is going to participate in some way, especially
as long as we have competition in this country. As long as we have
the dealer network, as long as we have the jobbers network, as
long as we have the refiners network, competition is going to exist.

T guarantee you, if my son calls a jobber and asks him the price
of a load of fuel and he thinks it is a little bit excessive, he will
call the next jobber. The same thing is true with dealers at service
stations. A guy across the street sees more people going into the
station across the street than they are coming to his, he will drop
his price, and eventually, that makes a full cycle. Somewhere
along, the consumer is actually going to benefit from the fact that
this 4.3 cents comes off of the price of gasoline or fuel or whatever
it is.

I hate it that a lot of people in the Congress and a lot of
consumer groups, and I saw where the Concord Coalition was here
earlier today. I am sorry I missed the earlier portion. But I hate
it that they are taking the opinion that we should oppose this, that
it is not going to help the consumer.

The truth of the matter is, the working people in this country
pay the entire bill. I do not care where you place taxes, what entity
you are trying to tax, or where you assess the tax. Working people
pay the bill—4.3 cents less coming from the private sector going
into the public sector means that the private sector is going to have
4,3 cents remaining there to where working people will have access
to it.

I wholeheartedly support the full repeal of this. I do want to ask
Mr. Harper, that asterisk that is by the 2.5 cents on motor carriers,
what does that asterisk mean?

Mr. HARPER. That means that that 2.5 cents went into the High-
way Trust Fund rather than being eliminated altogether. So it was
put where I think the consensus today seems to think it belongs.

Mr. CoL.ins. But going back to your testimony, the tax itself did
not fade away. It just went from one pot to another pot?

Mr. Harper. The tax itself did not fade away.


30

builds, the problems caused by pollution, health problems. I must
tell you I am somewhat disappointed that as a Congress and as a
Committee, this body is taking such a short-sided approach to our
Nation’s transportation policy.

Let me ask you the question, sir, Do you think reducing the price
of gasoline undermines our efforts to encourage mass transit, re-
duce gridlock, and improve the health and environment of our Na-
tion? What type of Nation are we going to leave for our unborn
generation if we do not do something about urban sprawl and con-

estion?
8 Mr. Royce. Let me share with you, the taxes imposed by govern-
ment on a gallon of gas across the United States are already over
40 cents a gallon. So, I think what we are doing by reducing this
latest levy on the taxpayers is just making it more affordable for
them, putting dollars Back in their pockets that should have been
left in their pockets to begin with.

I think a most important aspect of this is that when we look at
what we have spent on the Department of Energy since President
Carter created that agency, we look at the $15 billion a year we
spend there, is it not time that we left more money with the tax-
payer and got a rein on the costs of increase in the government
agencies?

Mr. Lewis. Mr. Royce, I do not think you are really dealing with
the question I am trying to ask here. Do you think by reducing——

Chairman ARCHER. The gentleman’s time has expired.

Mr. Royce. No, I do not. I really do not. I think it is a good move
for the American consumer.

Mr. Lewis. Do you not have some concern about the environ-
ment, about the future?

Mr. Royce. I do, and J—

Mr. Lewis. Do you not think we should lose the love affair with
the automobile?

Mr. Royce. We should lose the automobile?

Chairman ARCHER. The gentleman’s time has expired.

Mr. Hayes.

Mr. Hayes. Thank you, Mr. Chairman. I knew the day would
come when I also wanted to thank you for helping me to get on this
Committee.

I am not going to embroil myself in any of the political observa-
tions about the 1996 election because I think it is too important.
Instead, I will talk about 1993. I was a Member of the Democratic
party. I was a member of one of six or so Democrats who voted
against the 1993 tax increase.

If there are those in this room who are bemoaning the difficulties
they are now seeing from citizens who are not happy with the in-
crease in gas prices, I now understand, because, my goodness, if
they had passed that BTU tax that was the original proposal of Mr.
Gore, they would not have to worry about calls and letters. They
would have to worry about drive-by shootings. If you combine what
happened in the Northeast this winter with the irate level of public
concern, you would be sitting here today hoping you had enough
National Guardsmen to surround this hearing.

I also understand now for the first time why Al Gore proposed
a BTU tax. It was an environmental concern, and the gentleman


89

In conclusion, I would like to say that repealing this tax is not
about politics that happen to be going on in this building. It is all
about jobs and preserving thousands and thousands of jobs and op-
portunities in this country for people in our business. It would real-
ly help if we just stepped up and, for once, said, We are not going
to collect a tax that is not going into the trust fund, that is not
building roads, and that is not helping the people that move the
Nation’s goods.

I thank you very much, sir.

[The prepared statement and attachments follow:]


84

Chairman ARCHER. Thank you, Ms. Perry.
Mr. Blunt, if you would identify yourself for the record, you may
procee

STATEMENT OF HARRY W. BLUNT, JR., PRESIDENT, CONCORD
COACH LINES, INC., CONCORD, NEW HAMPSHIRE; AND VICE
CHAIRMAN, AMERICAN BUS ASSOCIATION

Mr. BLUNT. Thank you. My name is Harry Blunt and I am presi-
dent of Concord Coach Lines, Inc., of Concord, New Hampshire. I
also serve as vice chairman of the American Bus Association.

My company provides scheduled bus service throughout northern
New England, serving 37 points in Maine, New Hampshire, and
Massachusetts. We carry about a half a million passengers a year.

For the inner-city bus industry as a whole, the 4.3-cent-a-gallon
gas tax contributes, as Susan has already said, to a slender profit
margin for an industry that is suffering as it is already. As set out
in the testimony that Susan made, many of our operators, includ-
ing Greyhound, are still operating with operating ratios in excess
of 100 percent.

This tax simply is an increment in operating costs for us. The
bus industry and private business mine have already been hit in
recent years with a number of increased operating costs as a result
of additional government regulations. I know this Committee does
not have jurisdiction over these areas, but it is important for you
to keep in mind what we in the transportation industry must con-
tend with because of changing Federal regulatory policies.

In the past few years, just to name a few, we have had to develop
compliance programs for clean air, clean water, stormwater runoff,
underground storage tank regulations, the Americans with Disabil-
ities Act, drug and alcohol testing, family medical leave bills, and
major changes in oil and chemical waste management. Regardless
of whether or not we believe that these requirements are justified,
and that is not the issue, these policies have added major costs to
our industry and major costs to our suppliers, who have passed
their costs on to us in increased costs.

Candidly, sir, no one from Congress has ever come to us and
said, What will the cost of this be to your bus passenger? All of
these expenses we have had to absorb, and nobody has ever been
interested in what this does to the price of a bus tic et.

In the case of my company, we have not had a fare increase in
nearly 2 years, except in one minor instance where we had a 2-
percent fare increase. Bus carriers simply cannot pass the cost of
‘uel increases to passengers. Bus travel is extremely price elastic
because of the competition with airlines, Amtrak, and primarily the
private automobile. The price of a bus ticket cannot increase pro-
portionately to accommodate the actual rise in fuel costs and taxes.
The cartier must absorb the cost increases to keep the passengers
on the bus.


12

Specifically, H.R. 3375 cute the annual budget of the Department of
Energy by about 30 percent. As you know, the Department of Energy
was created by President Jimmy Carter following the Arab oil
embargo to solve the fossil fuel energy shortage. They have not.
solved the problem....il is still with us, and so is the Department
of Energy.

The Department of Energy has grown into a massive §15 billion
bureaucracy with multiple missions and questionable priorities.
Once the “energy crisis" of the 1970's passed, the Department was
without a clear mission. As a result, it began a fifteen year
empire-building process, in which it’s mission changed several
times. ‘The General Accounting Office has criticized the Department
of Energy, and called upon Congress to reevaluate the Department
and ite mission. In a February, 1995 report, the GAO stated that
the DOE “has a long history of management problems." Specifically,
the GAO concluded that the "DOE is not an effective or successful
Cabinet department." The GAO cites a number of problems, including
the inability of DOE to overcome management weaknesses, lack of any
credibility, eroding public support, and a diminishing sense of
purpose.

For these reasons, I am proposing the termination of unnecessary
programs, the consolidation of programs duplicative of other
departments or agencies, the transfer of programs serving a valid
purpose, and the privatization of programs that could be better
performed outside the government.



54

In 1972, when I went into business, I made a little over 7 cents
a gallon. Now it is 1996 and I am making a little bit more than
8 cents a gallon, after 24 years. There are a lot of reasons why we
have been able to accomplish that, the efficiency of the business
and the way we operate the different volumes that we have. But
the point is that we continue to make the same per gallon as we
always did.

T have to tell you that when you were talking earlier, there were
comments from the Members about what is going on on the west
coast. Some of those dealers right now are going for a month or two
without making any money, maybe losing money because of this
situation that has been imposed on them.

We think that this tax should be repealed. If you choose not to
repeal it, put it in the trust fund where it belongs and at least we
will get some use out of it. I do not want to be too bold to address
this to you, but to put this on the American motorist to reduce the
budget deficit was just wrong and I think it would be wrong to con-
tinue it. It is a tough choice to make, to have to go out and find
other ways to do it, But it can be done.

Thank you.

[The prepared statement follows:]


96

Table 2: California & National Daily Average Rack & Retail Diesel Prices

(S per Gatlan)
Date California Rack National Rack California Retail National Retail
15-Apr-96 0.906 0.803 1.496 1.321
16-Apr-96 0.923 0.802 1.504 1.327
17-Apr-96 0.938 0.780 1.513 1.329
18-Apr-96 0.946 0.764 1.530 4.331
22-Apr-96 0.968 0.738 1.553 1.822
23-Apr-36 0.974 0.728 1.563 1.316
24-Apr-96 0.984 0.736 1.574 1.309
25-Apr-96 0.989 0.742 1.584 4.308
26-Apr-96 0.992 0.746 1.594 1.307
29-Apr-96 0.996 0.749 4.604 1.307
30-Apr-96 0.997 0.758 1.595 1.306
01-May-96 0.998 0.748 1.599 4.308
02-May-96 0.998 0.740 1.602 4.308
03-May-96 0.997 0.740 1.614 1.307
06-May-96 0.995 0.755 1.614 4.308
% Change trom
4115 to 5/6 9.83% 5.99% 7.89% -0.97%

Source: Computer Petroleum Corporation PetroNet and ATA


75

larly business travelers who are constrained by budget limitations,
decide not to travel at all.

This statistic alone, Mr. Chairman, is enough to drop many
flights into the loss column and will surely result in airlines cut-
ting back, particularly in markets that have few passengers to
begin with. Economics will tell you that during the 5-year period
when the airlinep industry was losing billions of dollars,
government-imposed taxes and fees increased significantly more
and significantly faster than any single airline cost.

r. Chairman, I join with my transportation industry colleagues
today to urge you to move as quickly as possible to repeal a tax
which affects not only the airlines, our passengers, and our ship-
pers, but quite literally, directly impacts all Americans.

I look forward to responding to your questions.

Thank you, Mr. Chairman.

(The prepared statement follows:]


36

Figure 1
Highway Trust Fund Cash Balance, 1956 - 1996
(Highway and Transit Accounts)

Cash Balance ($Billions)
25

deposited into the Federal Highway Trust Fund was reinvested in the nation’s transportation
infrastructure.

“The integrity of this user fee type system first began to break down in the early 1970s
when the Federal Highway Trust Fund began to accumulate large balances. This was an
indication that users of the nation’s transportation infrastructure were being assessed a fee in
excess of the benefit they were receiving. In accordance with the benefit principle, excise
taxes on transportation should have been reduced at this time so as to maintain the equality
between what users of the system were being required to pay and the actual costs of
‘operating the system. Instead, excise taxes on transportation fuels have been consistently
increased since this time and the Federal Highway Trust Fund has continued to maintain

huge surpluses. At the end of FY 1995, the latest data available, this surplus was $19.0
billion. Because the federal budget process allows these surpluses to be used as an offset
against shortfalls in other parts of the budget, the revenues in this trust fund have, in effect,
been used to finance other federal programs.

The integrity of this user fee type system was further undermined by passage of the
Omnibus Budget Reconciliation Act of 1990. Like prior legislation, this act imposed a
temporary 2.5 cents per gallon levy on all fuels used in highway and rail transportation.
This temporary levy was set to expire on September 30, 1995. Unlike prior legislation,
however, this legislation directed the proceeds of this tax hike into the General Fund rather
than the Federal Highway Trust Fund. For the first time the tradition of using motor fuel
taxes to fund transportation projects had been formally broken.

‘The Omnibus Budget Reconciliation Act of 1993 further dissolved this link by
assessing a permanent 4.3 cents per gallon excise tax on motor fuels used in transportation.
AAs was the case with the 1990 Act, all of the revenue collected from this tax was explicitly
dedicated to the General Fund, not the Highway Trust Fund.

Repeal of the 4.3 Cents Per Gallon Gasoline Tax

‘The original concept of using the proceeds of motor fuel excise taxes to fund
transportation projects was firmly rooted in the benefit principle. As stated above, however,
the integrity of this system has been undermined by both the build-up of huge surpluses in
the Federal Highway Trust Fund and the diversion of transportation fuel excise tax revenues
into the General Fund. Repeal of the 4.3 cent per gallon gasoline tax would help to restore
integrity to the system


48 .

WEATHER

Weather has also played a very important role in the market gyrations over the last few
months. Cold weather during the winter boosted heating oil consumption and pushed up prices.
High distillate prices caused refiners to operate in maximum distillate mode longer than they had
intended, thus delaying the shift to gasoline.

‘The drought in the grain belt will add pressure on prices this spring by cutting the availability
of ethanol to the gasoline pool and by boosting consumption from the agricultural sector. The
impact is identical to the effect noted earlier when I discussed the role of government regulations.
‘Supply was reduced by the cold weather and drought, and high prices are now stimulating
consumption.

CASH MINIMIZATION AND JUST-IN-TIME INVENTORIES

One of the important and, until recently, ignored stories inthe industry has been the
aggressive effort by senior managers to extract cash from the business. For the last ten to fifteen
years, companies have worked very hard to reduce the amount of working capital tied up in
‘stocks. Recently, however, the effort to limit inventories took a new turn — firms began to
tolerate runouts.

‘The impact of the change in strategy should not be underestimated. This was brought home
‘to me recently when I made one of my periodic presentations to the senior managers of a major
cil company. One individual in the audience asked me what was different today from the situation
‘year ago or two years ago. This individual went on to note, “We have been trying to minimize
‘working capital invested in stocks for years.”

I responded by asking for a show of hands from the audience by individuals who had managed
terminals. 1 then asked these people whether the situation had changed The answer was that it
had. Up until fate 1994 or early 1995, the cardinal rule for terminal managers was never run out
‘One former manager noted, “There are quite a few used car salespeople who once had promising
careers in the oil industry until the terminal they were managing ran out of product. Then they
quickly became expendable.”

The situation today is different, One major keeps a sig in its trading room that says "KILL."
‘The goal is not to kill the competition but to “Keep Inventories Low and Lean.”

The effects of this new policy were seen in the natural gas market this winter. Last year (that
is, inthe fall of 1994) many local distribution companies (LDCs) went into winter with high
stocks which, it turns out, were not needed because the weather was warm As a result gas that
had been purchased for $1.80/mcf had to be sold for $1 40/mef or less Some of the losses were
passed on to LDC stockholders because regulators treated the losses as imprudent

This year the LDCs apparently went into winter determined not to be stuck with unwanted
stocks at the end of the year, Inventories were much lower and, as it tums out, inadequate for
demand, The consequence was much higher prices.

‘The same situation occurred in the distillate market. In the spring of 1995 dealers found that
they had unwanted inventories of heating oil. Inthe past these stocks would have been sold into
‘the distillate market. However, the imposition of more stringent requirements on diesel fuel made
it impossible to sell the fuel for over-the-road use The product had to be held or sold ata large
loss.


UT

Solutions, We must rely more on American-produced oil. That way, we could protect,
ourselves from the current scenario. We wouldn't be as vulnerable to another oil
embargo. We wouldn't send our children to fight “oil wars.” And the benefits go on:
more jobs, more royalty dollars in federal and state treasuries, fewer foreign tankers in
our waters, more stability.

IPAA urges the Ways and Means Committee to consider options in the tax code that
‘could enhance the domestic petroleum industry -- and ultimately the consumer Last
‘year, for instance, a bi-partisan coalition of senators and congressmen introduced the
Domestic Oil and Gas Production and Preservation Act (S 451, HR 987) which provides
tax incentives for domestic oil and gas production, including a tax eredit on marginal and
new production, percentage depletion reform, expensing of geological and geophysical
expenditures, and other updates to the tax code and regulatory system,

Another example of legislation that should be examined is the Energy Independence Act
which was introduced by Congressman Mac Thomberry yesterday in response to the gas
price situation, This act would change the tax code in a way that would encourage
domestic oil and natural gas producers not only to bring existing wells back on line, but
also would encourage new wells to be drilled -- adding millions of dollars to our
‘economy, thousands of jobs to our workforce and stability to our energy resource base.

Consumers want relief from high gasoline prices now. And they deserve solutions.
“America needs a sound energy policy that promotes the nation’s crude oil and natural gas
producers as our primary suppliers of oil and natural gas. We need to get over our
addiction to foreign oil. If we don't develop a strong energy policy now that enhances
the domestic oil and natural gas industry, cheap foreign oil will continue to flood our
country and play hava with prices. And then we all suffer the consequences,

IPAA looks forward to working with you and your committee in the coming month to
address how, by working together, we might best address this important national policy
goal. Please contact Milion Wells, IPAA’s director of tax and budget policy, at

(202) 857-4722 for more information.

Sincgf@\y,

v-O.Werkl

Lew 0. Ward


53

Mr. HERGER. Thank you, Mr. Verleger.

Now we will hear from Melvin Sherbert, chairman, legislative
committee, Service Station Dealers of American and Allied Trades.

Mr. Sherbert.

STATEMENT OF MELVIN SHERBERT, CHAIRMAN, LEGISLATIVE
COMMITTEE, SERVICE STATION DEALERS OF AMERICAN
AND ALLIED TRADES; AND OWNER/OPERATOR, TWO AMOCO
STATIONS, SUITLAND, MARYLAND

Mr. SHERBERT. Thank you, Mr. Chairman. Mr. Chairman and
Members, I am an Amoco lessee dealer in Prince George’s County.
My family operates two service stations. It is just 20 minutes from
here. I am also the past president of Service Station Dealers of
America and I serve now as their chairman of Government Affairs.

We support the repeal. We thought it was a wrong move when
it was imposed on us. Since the beginning of the interstate system,
we have lived with the fact that user fees made sense, and whether
we are waiting in traffic and cussing, and not because of the con-
struction, we are still aware that those are our dollars that we
spent at our service stations to fix our roads and bridges. So this
4.3 cents should have never been there to start with, and we do
support the repeal of it.

It will be seen. I assure you, it will be seen. Over the last week,
I have been talked to by economists and we have heard today about
these average prices. I assure you, there are no average prices at
Suitland Amoco or Marlow Heights Amoco that I operate. The price
there reflects a few pennies more than what I pay for it that day.

So when this tax was imposed, within a few days of that, my
price went up those few pennies, and when that tax comes off,
when the inventories are cleared, that will go on the street that
day, yes. If you want to measure all the rises and falls over the
course of 1 year in the gasoline price, then yes, you might say the
average price this year was no different than the average price last
year, but I assure you, the price on my corner is different.

I have spent the last 2 weeks walking around at each station,
talking to my customers, and I have taken a lot of abuse, which
I do believe I have countered, because it is not our fault as dealers.
Dealers are making less per gallon today than they were 1 month
ago. We are selling fewer gallons today than we were 1 month ago.
For what it is worth, our customers are shifting from our premium
to our regular, and though there are only a couple pennies dif-
ference in our profit between the two, that is not insignificant
when you sell thousands of gallons.

So it will make a difference in my neighborhood, and yes, we do
have to receive that price reduction. You are right. If oil companies,
and I cannot believe in this marketplace, with all the public rela-
tions that they are going to receive, they would refuse to pass that
decrease on to me as a dealer—I know I am going to pass it on.
If I chose not to pass it on, there is always one service station deal-
er on every street who would like to be the lowest, and the rest of
us want to match that price and we will do it, no matter what.
That is the art of our business and that is how you make a living,
making a few pennies and selling a lot of product.


49

This year heating oil dealers entered the winter with lower stocks. When cold weather
arrived, they were forced onto the spot market, where they bid up prices. Their demand spurred
refiners to continue in maximum distillate mode for a much longer period.

Here again one can see the pernicious impact of government regulations on the market, The
shift to low-sulfur diesel fuel, while undoubtedly a good idea, has fractured the distillate pool and
removed market flexibility. When consumption is unexpectedly higher than anticipated, the
incremental requirements must be met from production, not stocks.

AVERSION TO FALLING PRICES

The recent market events can also be traced to the fear of an impending price collapse. For
the last nine to twelve months, oil buyers have operated in fear of an impending glut of oil and the
possibility of another price collapse. This worry has been exacerbated by the promise or threat of
Jraq’s return to the world oil market, a concern that seemingly dominates the action of every
trader.

‘There are two obvious ways to deal with this problem, The first is to hedge inventories. The
second is to either own no inventories or operate with the minimum level of stocks. Most
companies have decided to cut or ‘inate inventories.

The first option — hedging — has become a less and less satisfactory means of obtaining
financial production from price collapses as inventories have been drawn down, To be precise,
the lower inventories are, the more expensive itis to hedge. The cost of hedging is revealed in the
spread between the first and second month futures contracts (a so-called calendar spread). As
these spreads worsen, a firm considering holding inventories and hedging faces increased
“packwardation” (a condition that exists when cash cil sells at a premium to forward oil), In turn,
the cost of hedging increases.

For example, in periods of high inventories, oil futures may sell for two or three cents per
gallon more than cash. In such circumstances, a firm that hedges actually locks in a profit, selling
not at today’s price but at a price that is two cents higher, Under these circumstances, it is not
expensive to hold stocks.

‘However, in periods of low inventories it becomes expensive to hedge. Gasoline supplies
today may sell for 65 cpg, while supplies for next month may sell at a discount of 2.3.4, or S epg.
In such a situation itis very, very expensive to hold stocks.

‘This phenomenon can also be described using terms from the insurance industry. During
periods of high inventories, it is very inexpensive to purchase price insurance (that is, to hedge).
It becomes progressively more expensive to buy insurance as inventories decline

‘Unfortunately, the desire to minimize stocks to avoid potential losses from a price collapse has
a way of becoming a self-fulfilling cycle, As stocks decline, the cost of buying price insurance
(hedging) increases and as the cost of buying price insurance increases, firms reduce inventories,
‘Today we are in one of those cycles. Some companies have begun to run down stocks to free up
working capital and to avoid inventory losses of the type associated with the 1986 price collapse.
As inventory levels decline, their actions push the market into backwardation, causing other
companies to cut stocks.

LOSS OF MARKET LIQUIDITY

‘The gasoline market has also been plagued by a loss of liquidity in the futures market. This
‘has made it more difficult to hedge substantial volumes and, as a result, limited the ability of
foreign offshore refiners to participate in the market

‘The loss of liquidity can be traced to the shift to reformulated gasoline — again evidence of
government meddling — and to the confusion at the state level as to the specifications required
Here the finger needs to be pointed squarely at the governors of New Jersey and Pennsylvani
‘Their actions last year on “opt outs” and the months in which oxygenates are required had a
devastating impact on the gasoline futures market. Consumers in their states are now paying
heavily for these actions."

"prepared an affidavit for the New York Mercantile Exchange in its suit withthe state of New Jersey. n that
affidavit | stated that the confusion created by the state would result in a loss of liquidity in the market and higher
prices this spring. Unfortunately Iwas right.


78

Chairman ARCHER. Thank you, Ms. Hallett.

Our next witnesses are in tandem, Susan Perry and Harry
Blunt, both representing the American Bus Association.

Ms. Perry, would you lead off.

STATEMENT OF SUSAN PERRY, SENIOR VICE PRESIDENT,
GOVERNMENT RELATIONS, AMERICAN BUS ASSOCIATION

Ms. Perry. Yes, I will. Thank you, Mr. Chairman, Members of
the Committee. Thanks so much for holding this hearing. We ap-
preciate your doing it and we appreciate being invited to partici-
pate.

Before I make three points very quickly, I just wanted to note,
as Mr. Royce pointed out, the situation with diesel fuel is much
worse in California because of their particular rules and regula-
tions than it is in any other place else in the country. I was in Cali-
fornia 2 weeks ago with the California Bus Association and they
are suffering very, very badly. I think Mr. Donohue will talk a little
bit more about this situation vis-a-vis the truckers in California,
and I just wanted to note that it is the same problem for the bus
industry with the diesel there.

The diesel fuel, when I was there 2 weeks ago, was up to $1.60
a gallon, and that is up from apparently about $1.10 just 1 year
ago. The real threat with that problem is that as summer comes,
and this is true all over the country, the bus companies use a lot
more fuel than they do the rest of the year, so this is why it is so
dire.

There are just three points that I would like to make quickly as
to why we are in favor of the proposal to repeal the 4.3 cents. Last
year, we testified and we submitted some testimony to this Com-
mittee asking for equity among the various transportation modes.
What we said was that if the 4.3-cent exemption for aviation were
to be continued, that we would like to be included in that exemp-
tion and we felt that that was a mater of equity.

As Carol said, their proposal to continue their exemption died
when the budget reconciliation bill was vetoed, so that did not hap-
pen, either. Now that Congress is proposing to repeal the tax for
everybody, I guess you could call that the ultimate equity and we
applaud that effort.

In addition to the lack of equity with the way the tax was im-
posed on the various modes, the American Bus Association opposes
the tax for two reasons. One of them certainly has been well dis-
cussed at length and that is diversion from the Highway Trust
Fund. We do believe that moneys collected from the use of highway
fuel should be deposited into the Highway Trust Fund and dedi-
cated for those purposes.

We believe that the tax is a regressive tax and it disproportion-
ately hurts bus passengers. It is difficult for bus companies to ab-
sorb any additional costs. Many of them are already enduring oper-
ating ratios in excess of 100 percent, which, obviously, they cannot
do for terribly long, but a lot of them are doing it.


88

Chairman ARCHER. Thank you, Mr. Blunt.

Mr. Donohue and Mr. Bowman are both here representing the
American Trucking Associations.

Mr. Donohue, if you will specifically identify yourself for the
record, you may proceed.

STATEMENT OF THOMAS J. DONOHUE, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, AMERICAN TRUCKING ASSOCIATIONS,
INC.

Mr. DONOHUE. Thank you, Mr. Chairman and Members of the
Committee. I am Tom Donohue, president and chief executive offi-
cer of the American Trucking Associations. As you indicated, Don
Bowman, our chairman of the board, is with us today.

Mr. Chairman, 9 million Americans make their living in the
trucking business. We represent 78 percent of the Nation’s freight
bill and account for 5 percent of the gross domestic product. Mr.
Chairman, we buy 40 billion gallons of diesel and gasoline and we
drive 350 billion miles every year, so you can imagine that sky-
rocketing fuel prices have had a devastating impact on our indus-
try.
Most of our companies are small. Fuel prices can represent up
to 20 percent of their overall operating costs, and a 16- to 20-cent-
per-gallon increase in diesel fuel prices, like we are experiencing
today, can easily tip the balance between staying in business or
going out of business. That is why the 4.3-cent fuel tax increase en-
acted in 1993 should be repealed for all fuels. The repeal should
be made immediately and, preferably, permanently.

There are particular problems with both diesel and gasoline that
the Committee should consider in terms of California. The extreme
gasoline price increases in California appear to result from the dif-
ficulty of requiring statewide use by June 1 of a special reformu-
lated gasoline which cannot be produced as fast as needed because
of the refining process, as you have heard discussed today. The
problem might be addressed by a phase-in or a short delay.

Congress should take a close look at whether special California
diesel makes sense in the light of the high cost and the very little
increase in clean air. We have made major improvements in clean
air with electronic engines.

In addition, the Congress should look at providing a relief mecha-
nism when the price of fuel in the air quality areas gets consider-
ably over what it is everywhere else. Maybe there is a trigger; I
am not sure. Think about it, Mr. Chairman. California is the larg-
est State in the union, has the fifth largest economy in the world,
and we are strapping their primary mover of goods, trucks, with
an additional 30 or 31 cents a gallon more than every place else
in the country.

It would help to keep inflation in check if we moved on this, and
certainly help to keep their economy in shape. Consumers would
save about $6.5 billion a year in fuel taxes if we went ahead on
your suggestions here, Mr. Chairman, and every truck in this coun-
try would save $600 a year.


43

Therefore, I conclude that the cut in the gasoline tax would prob-
ably not be reflected in retail prices or get to the consumer until
after Labor Day. In the meantime, the cut could quite possibly in-
crease voter cynicism about the actions that take place in this
town. In my opinion, it is a bad idea, particularly on the proposed
7-month basis.

Thank you for inviting me to speak.

[The prepared statement and attachment follow:]


113

Under-investment in transportation clearly produces undesirable costs: billions of dollars
in urban congestion, reduced business efficiency and competitiveness, unsafe conditions
and unacceptable levels of air pollution. The only way to address transportation needs is
through increased expenditures.

Congress next year is scheduled to reauthorize federal surface transportation programs
Without additional revenue, the trust fund cannot support an appreciable increase in
highway and transit programs In addition, itis certain that Congress will face the highly
contentious issue of how federal highway funds are distributed to the states. These
formula disputes have been a major feature of the authorization debate in other years, and
in 1997 they are likely to continue to dominate. The inability to devise a simple,
reasonable and equitable formula produced the complex arrangement that is now the basis
for distributing funds Failure to find a widely acceptable solution to the formula problem
could lead to the disintegration of a transportation program with a national focus, a
situation that would not well serve the United States or its citizens.

In addition to reducing the investment deficit, the additional resources provided by the 4.3
cents would greatly simplify the effort to provide equity in distributing transportation
funds to the states.

If the 4.3 cents of the gas tax are permanently repealed, political reality suggests that it
‘would be extremely difficult, if not impossible, to increase transportation funding in the
foreseeable future

For these reasons, we strongly recommend that the 4 3 cents not be repealed. If Congress
believes some step should be taken to reduce current gasoline prices, collection of the 4.3
cents could be suspended until, say, January 1997, at which time the proceeds should be
deposited in the Highway Trust Fund, This action would address the existing price
situation and, for the long run, provide funding for a strong national transportation system

While there may be seemingly attractive short-term reasons for repealing the 4 3 cents of
the gas tax, the long-term outcome could be ruinous to the country and difficult to
reverse. We firmly believe that the correct -- and more politically beneficial -- approach is
to assure stable and adequate funding for the nation’s vital transportation system


122

In the case of a lower excise tax, all suppliers would face a similar decrease in costs, creating
pressure on the entire industry to lower prices.

‘The amount of the tax reduction that would be passed on to consumers depends on the
elasticities of supply and demand in the market involved. For a good such as motor fuel where
demand is relatively inelastic, it is likely that most of the reduction would be passed on to
consumers.

Of course, other constantly changing factors in the market will affect an industry's supply
and demand and therefore the market price. Consequently, the change in price brought on solely
by the repeal of a tax may be masked by changes in other factors. This means that the repeal of
the 1993 fuels tax does not guarantee that the final market price will be lower than before repeal
It does mean, however, that it would be lower than it would have been without repeal

Opponents of repeal also state that the 1993 fuels tax does not need to be repealed since
fuel prices in the United States are significantly lower than those in other countries around the
‘world. While we may have lower fuel prices than other nations, it is unsound reasoning to
rationalize the existence of an excise tax that retards economic growth and costs jobs simply
because other countries impose higher taxes on their citizens. The United States needs to keep
its income and excise taxes as low as possible in order for its businesses to be competitive
internationally.

For the above reasons, the U.S. Chamber urges this Committee to support repeal of the
4.3-cents-per-gallon fuels excise tax enacted as part of OBRA ‘93.

eo)


CONTENTS

Advisory of May 1, 1996, announcing the hearing ..

WITNESSES

Air Transport Association of America, Carol Hallett .....
American Bus Association:
Harry W. Blunt, Jr
Susan Perry
American Trucking Associations, ine.
Donald M. Bowman
Thomas J. Donohue »
Association of American Railroads, Edwin L. Harps
Blunt, Harry W., Jr., American Bus Association, and Concord Coach Lines,

inc se
Bowman, Donald M., American Trucking Association,
Bowman, Inc

Concord Coach Lines, inc,, Harry W. Blunt, Jr
D.M. Bowman, Inc., Donald M. Bowman ...
Donohue, Thomas J., American Trucking Associations, Ine
Fleenor, Patrick W., Tax Foundation
Hallett, Carol, Air Transport Association of America
Harper, Edwin L., Association of American Railroads
National Taxpayers Union, David L. Keating
Perry, Susan, American Bus Association ...

Royce, Hon. Ed, a Representative in Congress from the State of California .
Service Station ’Dealers of American and Allied Trades, Melvin Sherbert
Tax Foundation, Patrick W. Fleenor
Verleger, Philip'K., Jr., Charles River

SUBMISSIONS FOR THE RECORD

American Road & Transportation Builders Association, statement ..
‘American Waterways Operators, Arlington, VA, statement
Concord Coalition Citizens’ Council, statement
Independent Petroleum Association of America,
Propoane Vehicle Council, statement ..
Rahall, Hon, Nick J., a Representative in Congress from
Virginia, statement ...
fhamber of Commerce,

Inc., and D.M.

inclaire, statement and attachment .

iii)


106

Chairman ARCHER. So you are satisfied if we remove it you will
see a reduction in your fuel prices?

Ms. HALLETT. Yes. And, in fact, just yesterday, I met with two
of our carriers, Aloha and Hawaiian, and they have now been
forced to place a surcharge on passengers because of the increase
in fuel coupled with the 4.3-cent-per-gallon tax.

Chairman ARCHER. Mr. Donohue, I heard somewhere recently
that there were a number of trucks that have been idled by the
higher fuel bills in this country. Can you tell us approximately how
many trucks are not operating today because they cannot afford to
pay the higher fuel bill?

Mr. DONOHUE. Mr. Chairman, let me say that if you take large
and small trucks, there are about 5 million trucks running around
the country today and almost 2 million tractor trailers. Some are
idled from time to time because of overcapacity and high competi-
tion in this business.

But I will tell you that in California in particular, where fuel
prices are 30 to 31 cents above everything else that has gone up,
and in the agricultural industry and others, there are people that
are not able to compete and participate. I am sure that you will
find that in other industries around this country.

If you are a marginal carrier—understand, we have more than
300,000 carriers. A huge number of them, the great proportion,
have less than six trucks. Those are people that buy fuel with the
local credit card or sometimes cash, and when that number gets up
high enough, that may be the week or the month that they are no
longer able to go forward. This is an industry of small companies.
This is our second largest cost, personnel being first, and if you
cannot get the fuel, you cannot run the truck.

Chairman ARCHER. So you cannot at this time quantify what
number or percentage of the trucks have been made inoperative
simply because of higher fuel prices? But clearly, what you said is
understandable.

Mr. DONOHUE. Mr. Chairman, if I could just add one sentence,
one thing that we all know about excise taxes is that they fall
hardest on those people least able to pay; whether it is the car-
penter that has to drive 60 miles each way to and from work, or
whether it is someone that is using his of her car for another rea-
son, and it is the exact same thing in the trucking business. It falls
most directly on those least able to pay. So for the small family guy
with three trucks, or even one truck, there comes the week that he
cannot make that payment. He is not going to run that week.

Chairman ARCHER. Thank you.

Mr. Neal.

Mr. NEAL. Thank you, Mr. Chairman.

I would suggest, Mr. Chairman, that if we had a chance to re-
schedule the panels, that this perhaps should have been the first
panel this morning, because at least this panel has been instruc-
tive. The debate, and I would call it debate, that went on this
morning was simply the suggestion that this was an easy issue to
resolve. It was simply black and white, that we just ought to pro-
ceed. As much as the Chairman made reference to those on the left,
there are many people, I think, on this Committee that really de-
sire trying to get to the heart of the issue.


66

Chairman ARCHER. Mr. Zimmer.

Mr. ZIMMER. Thank you, Mr. Chairman.

First, I would like to ask Mr. Verleger, were you invited here by
the minority side of this Committee?

Mr. VERLEGER. I think I was invited by the minority side, sir. I
am an independent, so it——

Mr. ZimMeER. I am not casting aspersions on your independence.

Mr. VERLEGER. I understand.

Mr. ZIMMER. It is just that for those people who think that this
institution, this House, has not changed since November 1994,
when the Democrats invite a witness who is affiliated with the
CATO Institute and who bashes the EPA, I think it shows that the
ground has shifted a bit.

I think we pretty well established your view that in the short
term, the prices at the pump will not necessarily change. But in
the longer term, over a period of 1 year, assuming we can keep this
reduction in the tax for 1 year, do you see that finally the reduction
in the tax will show up at the pump?

Mr. VERLEGER. Yes. After Labor Day, I am fairly certain it will
show up at the pump.

Mr. ZIMMER. So it will be approximately 4.3 cents?

Mr. VERLEGER. I am not sure whether it will be 4.3 cents. As you
know, and as Congressman Archer said, enough assumptions can
be pushed around to get it anywhere from 3 cents to 2 cents to 4.3
cents, maybe even more.

I will say, as a former Treasury official, the main reason I
am worried here about this is that this is being advertised as a 4.3-
cent reduction in the price of gasoline. As you know from visiting
around the country and visiting your district, the public has a jus-
tifiable cynicism with Washington.

So if Congress were to pass a law and say the price is going
down by 4.3 cents a gallon and the prices then do not go down, in
fact, they go up this summer because everybody is driving their
larger cars at 75 miles an hour and creating greater demand, I
think that there would be a lot of unhappiness in the public. That
is my worry, and that is a huge worry on my part.

Mr. ZIMMER. Thank you.

Mr. Fleenor, the Tax Foundation made some predictions back
when this gasoline tax was originally considered about the impact
on jobs in the United States. Do you have any prediction as to what
the reduction in the gasoline tax will do as far as creating jobs?

Mr. FLEENOR. I did not work on that report. What I could say
is that in the long run, a reduction in the gas tax will reduce the
wedge between the cost of producing a product and its price. That
will reduce the deadweight loss in our society and you should ex-
pect an increase in jobs as a result.

Mr. ZIMMER. For the record, Mr. Chairman, in 1993, the Tax
Foundation predicted that the 4.3-cent increase would cost 69,508
jobs nationwide. I commend you on your precision in that pre-
diction. I would like to know exactly what history has given us.

The second question I would like to ask is whether you and the
Tax Foundation believe that the gasoline tax is a regressive tax in
the sense of the word that economists use it, that is, that poor peo-


52

majors. Today there are only 20,000 stations and roughly 0 percent are hypermarkets.
(Hypermarkets are supermarkets with attached gasoline stations. You might call them “super
convenience stores.”) The same phenomenon is now occurring in the United Kingdom and is *
about to startin Japan,

1 do not know whether the hypermarket phenomenon will reach the United States. However,
1 do know that firms need to innovate to stay in the business, Thus I conclude by advising you to
continue pushing the innovation curve if you want to survive

Let me thank you again for inviting me to speak.


101

STATEMENT OF EDWIN L. HARPER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ASSOCIATION OF AMERICAN RAILROADS
BEFORE THE
COMMITTEE ON WAYS AND MEANS
UNITED STATES HOUSE OF REPRESENTATIVES
HEARING ON THE IMPACT OF THE 1993 TAX INCREASE ON
TRANSPORTATION FUELS
MAY 8, 1996

Mr. Chairman and Members of the Committee, { am Edwin L. Harper, president
and chief executive officer of the Association of American Railroads (AAR). | appreciate
this opportunity to present the railroad industry's perspective on current proposals to
eliminate portions of the fuel excise taxes imposed in the Omnibus Budget Deficit
Reduction Act of 1993 (OBRA ‘93). These proposals involve repeal of the 4.3 cents-per-
gallon deficit reduction fuel tax imposed generally on competing modes of transportation.
‘As Congress seeks to repeal the 4.3 cents-per-gallon deficit reduction fuel tax to which
transportation modes generally are subject, AAR urges you to also repeal the 1.25 cents-
per-gallon deficit reduction tax resulting from OBRA ‘93 which is uniquely and
inequitably paid by the railroad industry.

FUEL TAXES ON TRANSPORTATION MODES ARE NOT AN
APPROPRIATE DEFICIT REDUCTION MECHANISM

In discussing fuel tax levels, it is important to distinguish the two distinct types of
fuel taxes now in place. First, there are fuel taxes which are essentially user charges
imposed on certain individual modes of transportation to pay for the improvement and
maintenance of public infrastructure and rights-of-way on which they depend, Motor
carriers and other motorists pay fuel taxes to the Highway Trust Fund as a user charge for
federally-financed construction, operation and maintenance of the publicly-owned

streets and highways throughout America. Likewise, inland waterway carriers pay
similar fuel taxes to the Inland Waterways Trust Fund to support federal spending on the
publicly-owned inland waterway system. Air passengers, until recently, have paid ticket
taxes which support airport and air traffic control system improvements. In contrast to
the other modes, however, railroads build, own and operate their owm rights-of-way and
thus do not pay federal excise taxes or user fees (Fuel or otherwise) for these purposes.
‘The freight railroad industry does not want or need a trust fund. As a privately owned
and operated industry, each freight rail carrier makes its own investment decisions and
pays significant property taxes on these privately-owned rights-of-way.

Second, other fuel taxes are paid by freight transporters solely for deficit
reduction. Prior to 1990, the only purpose of the transportation fuels tax was to finance
non-railtoad transportation infrastructure or operations.’ The 1990 Budget Reconciliation
Act, for the first time, extended the fuel tax beyond its historical role as a user fee, by
introducing a 2.5 cents-per-galion deficit reduction tax on highway users and railroads,
payable into the General Fund of the Treasury.” OBRA ‘93 imposed an additional
4.3 cents-per-gallon deficit reduction rate on all transportation modes, albeit
with a deferred effective date for commercial airlines; this tax remains in place and is the
subject of this hearing.

Itis AAR’s view that the deficit reduction diesel fuel taxes imposed in 1990 and
1993 should be repealed. It is fundamentally unfair to single out one industry —
transportation -- from other segments of the economy to pay for deficit reduction
Moreover, itis grossly unfair to then single out one mode of transportation -- the railroads

* With the exception of the 0.1 cents-per-gallon Leaking Underground Storage Tank (LUST) tax, which
has expired.

* The railroad industry alone continues to pay 1.25 cents of this 1990 tax into the General Fund. (This is
discussed in detail below in section IT.)


26

Mr. HERGER. I have been home every weekend for the last 5
weeks and all I hear is the fact that our gasoline prices are going
up. That is all I am hearing, so this is a major problem. I do not
know if it is a major problem everywhere, but it certainly is in my
district.

Again, I want to commend the gentleman for his legislation. I
certainly support it very strongly, and everyone I talk to supports
it. We are also in the process—my own State legislators are in the
process—of rolling back some taxes there in California and chang-
ing the Air Resource Board, which is another environmental prob-
lem we have there.

Mr. Royce. That is a point. The California prices are over 18
cents, the State excise tax, and on top of that there are sales taxes
in California. I have spoken to the new speaker of the California
legislature and he is attempting to reduce those State taxes in
California. As a matter of fact, he introduced a bill to do that, Mr.
Herger.

Mr. HERGER. Thank you. I yield back the remainder of my time.

Chairman ARCHER. Mr. Stark.

Mr. Stark. I will yield to Mr. Matsui, Mr. Chairman, if I may.

Mr. Matsul. Thank you, Mr. Stark. I appreciate it.

Thank you, Mr. Chairman.

Ed, could you tell me, when did you introduce your bill?

Mr. Royce. I introduced this bill 1 week ago.

Mr. Matsu!. During the energy increase? I thought maybe you
had introduced it before. Could you tell me why you believe the
price of gasoline, in some cases, as you say, has gone up 20 cents?
I have seen it go up 30 cents in some areas in the Washington
area. Perhaps you can give me your rationale as to why this price
increase has occurred over the last 30 days or so.

Mr. Royce. I think there are a number of factors and I do not
have the answer, but I do know one component that is a major part
of the price of gas, and as I have shared with you, it is the govern-
ment taxes on gasoline, 47.5 cents. So that is something we can do
something about. I think we should do what we can about the other
factors. I agree with you on that.

Mr. Martsut. But do you know what these other factors are?

Mr. Royce. I have read the same stories and I have been in the
same briefings, I think, you have been in. This has been shared
with us.

Mr. Matsul. Would you like to relate them to us? I think that
is why we are all here today.

Mr. Royce. We have discussed the different aspects. Admittedly,
we have a couple refineries down in California. We do have some
problems with expectation that we could have oil coming on the
market out of Iraq. That did not happen. We have questions about
what is happening in the gross margin at the refineries. We have
questions about what is happening with the oil situation in Russia
coming on the market.

Mr. MATSUI. Maybe you could break it down.

Mr. Royce. There are a lot of factors.

Mr. Marsul. I will give 4.3 cents out of the 30 cents, so we are
down to 26, 25.7 cents. Where does the 25.7-cent increase come
from over the last 30 days? Can you break it up for me? We are


22

to the gentleman from Michigan, I thought we were on the “Jeop-
ardy” program and pretty soon he was going to ask for “Tax In-
creases for $500, please, Alex.” That is not what happened, luckily,
because if it did, we would have had to go into the history of this
tax increase a little bit, so let me do that briefly, and then I have
a question for you, Mr. Royce.

My understanding of how we got to this point is that the Demo-
crats in 1993, as their way to “solve the deficit,” was to increase
taxes a lot, increase spending quite a bit but maybe not as much
as they increased taxes, and as a result, they were going to solve
the deficit. The righteous indignation we hear today about how this
either worked or went to the solution does not recognize that, in
fact, that solution in 1993 did fail and, in fact, it did not bring
down the deficit. There have been deficits proposed and projected
for years as a result of that 1993 deal.

Now they are running from their vote. The gentleman from Flor-
ida suggested that. He sure wanted that to go to the trust fund and
he did not have any control over it. Of course, he was a Member
of this Committee and in the leadership, but he did not have any
control over that fact. Now, of course, they want to rewrite history
and have amendments so that it goes toward the trust fund. But,
in fact, it did not go to the trust fund. It went to fund bigger gov-
ernment.

Now Mr. Royce comes forward today with what I think is a rea-
sonable proposal, one that suggests a way to pay for this by reduc-
ing the size of government. Maybe it means Hazel O’Leary is going
to have to park her plane in the airport a little bit more than she
is used to, and that is probably a good thing for all of us. But it
means the cost of government is going to go down, and that is real-
ly the issue here today.

The President himself indicated he raised taxes too much and he
did a mea culpa down in Texas about 1 year ago, suggesting and
apologizing to the American people that he raised taxes too much.
This is our opportunity to help him out by, whether it is Mr.
Royce’s proposal or another proposal, reducing the size of govern-
ment so that we can, in fact, give back to the people, the American
people, a little bit of what they earn, and that is really what this
is all about.

There are some that suggest this is pandering. Obviously, they
have never heard of the minimum wage. This is pandering? You
have never heard of the minimum wage, obviously.

This is not pandering. It is putting back in the pockets of the
American people that which they earned so they can spend it more
wisely. They say there is no impact. Obviously, they have not
talked to working families, maybe somebody who has their very
first job, maybe on minimum wage, who have to pay more in taxes
in order to get to work.

They say there is no impact on seniors that are living on a fixed
income. They have forgotten about seniors now, all of a sudden.
There is no impact, they say. They say, let us just continue this tax
and let us just fund more government. Their answer is price con-
trols. I do not think that is the answer.

Mr. Royce, what I would like to know from you, and this comes
up quite often and I think Republicans are painted this way and


105

a price that is no lower than we have today after withdrawing the
fuel tax, but it would have been 4.3 cents higher if the tax had not
been repealed.

Second, a lot of the people in our business did not just fall off
a turnip truck. We are going to keep the heat on the oil companies.
We understand what drives fuel prices up and down and we are

cing to keep the heat on them to keep their pricing to market
orces and not to try and assimilate the benefits of a reduction in
taxes. I have observed that oil companies respond to that type of
thing on the public level and we now have in Congress for what
seems to be the 112th time, an investigation of the oil companies.
But that does keep the spotlight on these guys.

I am convinced that we are 4.3 cents better off one way or the
other. We know this. If we do not take it off, it is going to be there,
for sure.

Chairman ARCHER. Should Congress include a requirement that
the price of fuel be 4.3 cents lower after the effective date of this
act?
Mr. DONOHUE. Mr. Chairman, I am fundamentally opposed to
price controls. They do not work, you cannot follow the little birdie

cause at the end, when you take them off, prices always go up.
I do not think you can legislate that.

I think the role of Congress is to impose or withdraw taxes.
When you withdraw them, and with a stern eye toward the people
that are providing the product, I think we will get the end result.
If they do not, the people at this table will be back in here singing
a different song, encouraging you to do something that would be
necessary at that time.

But I think we believe, and our industry is convinced, as a pur-
chaser of 40 billion gallons of this stuff, we will get a fair shake
out of the oil industry on this matter. They have no place else to
go. We buy the product.

Chairman ARCHER. Ms. Hallett.

Ms. HALLETT. Mr. Chairman, airlines buy their fuel at a price set
before taxes are added. Therefore, in the highly competitive jet fuel
market that we are involved with, we are confident that carriers’
costs will go down with the passage of this very important legisla-
tion.

At the same time, as an association, we cannot discuss, arrange,
or really otherwise deal with any of the consumer pricing issues.
We are also convinced that if fuel costs, as our second biggest com-
ponent of all of our operating expenses go up, our costs of doing
business are going to go up. If that cost is held in check, then obvi-
ously it is going to be very important in terms of decisions that are
made by the carriers.

But I would hearken back to the original concern we have and
that is that the airline industry has been working on this issue for
over 2 years now. One of the reasons this was so important to us
was not only because of our losses, but because President Clinton’s
own National Commission To Ensure a Strong Airline Industry, led
by former Democratic Governor Baililes of Virginia, said that it
made absolutely no economic sense to impose this 4.3-cent-per-
gallon tax on our industry, and yet that tax has been imposed on
us.


34

Chairman ARCHER. The Chair would invite our first panel, Mr.
Fleenor, Mr. Keating, Mr. Verleger, and Mr. Sherbert, to come to
the witness table.

Gentlemen, welcome to the Ways and Means Committee. Our
standard rules of procedure are that, without objection, your entire
statement can be entered into the record in writing. We would ask
that you limit your oral testimony to 5 minutes. There are three
lights in front of you: green, yellow, and red. When the yellow light
is turned on, it means you have 1 minute left. We hope that we
can get your cooperation to summarize within that 5-minute limit.

Under those suggestions, Mr. Fleenor, would you please identify
yourself for the record and then you may proceed.

STATEMENT OF PATRICK W. FLEENOR, ECONOMIST, TAX
FOUNDATION

Mr. FLEENOR. Mr. Chairman, Members of the Committee, my
name is Patrick Fleenor and I am an economist at the Tax Founda-
tion. It is an honor for me to appear before your Committee today
on behalf of the Tax Foundation to discuss proposed repeal of the
4.3-cent-per-gallon gasoline tax.

The Tax Foundation is a nonpartisan public policy research insti-
tute which has conducted analysis of tax policy since 1937. We do
not take positions on specific pieces of legislation. Our goal is to ex-
plain as precisely as is possible the current state of fiscal policy
and the consequence of particular legislation in light of established
tax principles so that you, the policymakers, have the information
you need to make informed decisions.

I have a prepared statement which I will submit for the record.
I will summarize my statement.

The problem we find with the 4.3-cent-per-gallon gas tax has
been discussed earlier. The initial concept of using the proceeds of
excise taxes on motor fuels to fund transportation projects was a
sound one. People using the Nation’s transportation infrastructure
are assessed a user fee via the excise taxes on motor fuels to fund
highway construction, maintenance, and operation. The concept has
long been recognized as a central tenet of public finance, known as
the benefit principle.

The problem with the 4.3-cent-per-gallon gas tax is that it goes
into the general fund and not into the Highway Trust Fund. This
has undermined the integrity of the user feo concept that was ini-
tially envisioned for the Highway Trust Fund.

Repeal of the 4.3-cent-per-gallon gasoline tax would help to rees-
tablish this principle. I would be happy to answer any questions.

[The prepared statement follows:]


115

Statement for the Record
by the
‘American Waterways Operators
to the
Committee on Ways and Means
US. House of Representatives
Washington, D.C.
May 8, 1996

Chairman Archer, members of the Committee, thank you for requesting our comments for your
hearing on repealing the 1993 4.3 cents per gallon transportation fuels tax which by law is
deposited in the General Fund for deficit reduction purposes.

The American Waterways Operators (AWO) is the national trade association representing the
inland and coastal barge and towing industry and the shipyards which build and service our
industry's vessels. AWO is comprised of more than 300 individual companies, with a
geographic scope ranging from New England to Alaska, and throughout the interior river
system of the United States.

‘As you recall, Mr, Chairman, during the 1993 budget debate, the initial administration budget
proposal called for the imposition of a BTU energy tax, and a $1.00 per gallon, 525% increase
in the barge fuel tax. This tax is paid only by our industry into the Inland Waterways Trust
Fund, which by law, provides funding for 50% of the construction and rehabilitation costs of
the multi-use inland waterways infrastructure.

As you likewise recall, due to widespread opposition to these proposals, what was viewed as a
compromise proposal was developed to access a 4.3 cents per gallon tax on all transportation
fuels, with funds collected going to the General Fund for deficit reduction. Thus, as a result of
‘enactment of this proposal, our industry currently pays 24.3 cents per gallon in federal fuel
taxes, 20 cents going into the trust fund, and 4.3 cents going for deficit reduction.

While in the context of the 1993 debate, the 4.3 cent compromise was obviously far preferable
to the alternative of a BTU tax of at least eight to ten cents per gallon and the $1.00 per gallon
basge tax, the proposal nevertheless breached the government's longstanding commitment to
the public that transportation fuel taxes would be used to finance infrastructure improvements,
i.e. that user taxes would be returned to the public by way of future infrastructure investments.
As a result, AWO's Board of Directors, at the start of the 104th Congress, directed the
association to support legislative efforts to repeal the 4.3 cent tax, or if outright repeal is not
possible, to support efforts to redirect the levy into the individual transportation trust funds for
infrastructure improvements.

We therefore very much applaud the Committee’s approval of the repeal proposal and support
your efforts to enact this measure as soon as possible.

Thank you


58

to just have a $50 a gallon tax and that way we can solve the defi-
cit and the consumer will not know the difference.

What we have here today is Mr. Verleger, on the one hand, an
economist, who makes a living making assumptions, and Mr.
Sherbert, on the other hand, who makes his living selling gasoline.
Mr. Sherbert disagrees with Mr. Verleger. He says, if I get to take
the 4.3 cents off the front of my gasoline tank, I do it. Mr. Verleger
says, oh, no, that is not true. If we reduce the tax by 4.3 cents, Mr.
Sherbert is not going to take it off the front of his gasoline tank.
Who is right? I would vote with the guy who actually has the gas
tank.

Mr. Verleger, I would like for you to respond to that.

Mr. VERLEGER. Sir, as you know, I have a great deal of sympathy
with the retailer. I know he would take the 4.3 cents a gallon off
and pass it on. I would go visit him. The trouble is, he does not
impose the 4.3-cent-per-gallon tax, as you know, because of the law
that you passed. The 4.3-cent-per-gallon tax is imposed where gaso-
line breaks bulk, which in this case, is at the Fairfax terminal,
where I believe Amoco delivers. What is required is for the price
to come off there.

What I said about supply and demand was that the price in the
market is set by equilibration of supply and demand, and normally,
consumers buy more if the price goes down. The price cannot go
down if the industry cannot produce any more.

My point now is EPA has so jiggered the system—I think you
were the one who noted we could have had the BTU tax, and I tes-
tified here opposed to the BTU tax—but if we do not fix the EPA
distribution regulations which make it almost impossible to move
product, and if one does not fix the production process and the im-
port rules, there is no more product, so there will be no more sup-
ply, so the price cannot come down. That is the point I am making.

I know Mr. Sherbert would reduce the price by 4.3 cents per gal-
lon. Indeed, given the way the system works, I suspect somebody
would reduce it by 5.3 cents per gallon. But first, it has to come
off at Fairfax.

Mr. McCrery. I do not disagree with that, but surely, surely, you
must admit that if we were to impose $50 of tax, the price would
go up, and then if the next week we were to repeal that $50, the
price would go down. Certainly, we do not expect immediately to
see at every gas station a 4.3-cent reduction in the price of gasoline
to the consumer because there are many other factors which affect
the price of gasoline. I do not argue with that, sir. But for you to
go further than that and state that if all other factors remain the
same and we remove the 4.3-cent gas tax, nothing would happen
to the retail price of gasoline, I think is a stretch.

Mr. VERLEGER. As I said, sir, I understand that you are correct
about the assumptions and some portion of it will probably get
seen, and a good portion of it will get seen after Labor Day. But
in the meantime, you will hear from your constituents this sum-
mer.

Mr. McCrery. Oh, I understand. We are going to have some ex-
plaining to do when the price does not come down. In fact, it may
go up because these pressures that you have talked about may be
exacerbated in the next couple of weeks. We do not know.


112

‘Statement of the
American Road & Transportation Builders Association
To
Committee on Ways & Means
U.S. House of Representatives

May 8, 1996

Chairman Archer, Mr Gibbons, members of the committee Thank you for allowing us to
submit comments for your hearing today on the 4 3 cents per gallon fuel tax currently
going to the General Fund

The American Road & Transportation Builders Association (ARTBA) was founded in
1902 and is the only national association devoted solely to the planning, construction and
safe operation of transportation facilities of all types. Our membership of 4,000, located
throughout the nation, is composed of contractors, engineers and planners, equipment
manufacturers, materials suppliers, financial institutions, educators and transportation
officials from federal, state and local governments

Our membership is greatly concerned that congressional actions in the near future on the
4.3 cent gasoline tax will undermine the nation’s ability to develop, maintain and operate
an efficient, productive transportation system. Under the extreme pressures of a
presidential election year, Congress may take -- or not take -- actions that could preclude
for years its ability to adequately fund badly needed transportation improvements

ARTBA is unalterably opposed to using federal fuel taxes for anything other than to
finance improvements in transportation facilities We strongly opposed enactment in 1993
of the 4,3 cents-per-gallon tax increase for deficit reduction and remain convinced it is bad
public policy That action was totally contrary to the user fee concept adopted in 1956
when the Highway Trust Fund was created. Rather than permanently repealing the 4.3
cents of the tax, we believe the income it produces should be deposited in the Highway
Trust Fund

There are several reasons why this is a necessary move. It is widely accepted that for
years the United States has not adequately invested in its transportation infrastructure.
The result of this neglect is a transportation system unable to support a dynamic, growing
economy, Last October, the Department of Transportation documented that just to
maintain current conditions, an additional $15 billion a year was needed for roads and
bridges. Transit needs were nearly $2 billion short of needs,

Last year, the Congress approved designation of the new National Highway System, a
161,000-mile network of the nation’s most important roads, including the Interstate
System. The DOT reports that maintaining current conditions on the NHS requires
expenditure of $21.5 billion, more than the totai of federal spending for all highways this
year.


16

Statement of Carol Hallett
President and Chief Executive Officer
Air Transport Association of America

Hearing before the Committee on Ways and Means
On the Repeal of the 4.3 Cents-Per-Gallon
Transportation Fuel Tax
May 8, 1996

Mr. Chairman, and members of the Committee, I am Carol Hallett, President and
CEO of the Air Transport Association of America. On behalf of our member airlines,” I'd
like to applaud the Committee’s proposal to repeal the 4.3 cents-per-gallon transportation
fuel tax.

It’s the right thing to dot

‘As you know, repeal of the jet fuel tax on commercial aviation has been the airline
industry's number one legislative priority since it was enacted in 1993 as part of President
Clinton's deficit-reduction plan. At the time of enactment, our industry was granted a two-
year exemption from the tax in recognition of the industry's precarious financial condition ~
+ losses totaling over $13 billion since 1990.

Thanks to you Mr. Chairman, Congressman Mac Collins, Congresswoman Jennifer
Dunn, and the rest of the committee, an extension of our industry’s exemption from the tax
was included in last year’s budget-reconciliation legislation.

Unfortunately, that bill was vetoed by President Clinton and the airlines joined all
other transportation modes in paying this deficit reduction tax.

The transportation fuel tax is having an adverse impact on the financial well-being
of the airlines.

Jet fuel prices averaged 55.8 cents-per-gallon in 1995. They reached a low of 54.1
cents last July. Since then, they have steadily risen with sharp increases in the last several
months. Jet fuel prices in March -- which is the latest available information -- were about
65 cents-per-gallon

Mr. Chairman, U.S. airlines consume 17 billion gallons of jet fuel per year.

Each one cent-per-gallon increase in the cost of jet fuel equals approximately $170
million per year in additional cost to the industry.

Consequently, the 11 cents-per-gallon increase in jet fuel from the 1995 average
level is of very serious concern for the airline industry. ‘This twenty percent increase in the
price of fuel will add $1.8 billion to our costs over the course of a year,

On top of the recent run-up in jet fuel prices, the airlines are now also paying the
4.3 cents-per-gallon tax on domestic fuel consumption which adds another $550 million to
our costs.

“ATA member carriers include: Alaska Airlines, Aloha Airlines, American Airlines, American Trans Air,
America West Airlines, Continental Airlines, Delta Air Lines, DHL Airways, Evergreen Intemational Airlines,
Federal Express, Hawaiian Airlines, KIWI Airlines, Midwest Express, Northwest Airlines, Polar Air Cargo,
Reeve Aleutian Airways, Southwest Airlines, Trans World Airlines, United Airlines, United Parcel Service,
and USAir. ATA associate members include: Air Canada, Canadian Airlines International, and KLM-Royal
Duteh Airlines.



28

I want to thank you, one, for your legislation. I was somewhat
amused by the gentleman from Wisconsin’s reference to the rest of
the story. Frankly, I did not think any Democrat would want to en-
gage in the rest of the story dealing with the 1993 tax increase.
This is only one aspect of the grab bag approach to try and find
revenue to claim that they are beginning to reduce the deficit. Even
the President said he raised taxes too much.

I am not going to focus on how much, because, clearly, it was too
much, but rather on where they got it. This tax is an example of
how they tried to piecemeal together the money to make it look
good. They went after the seniors, increasing tax on Social Security
above a stated income from 50 to 85 percent, the first ever shift
from those sources of funds to try to cover up the continuing hem-
orrhaging in the trust fund in Medicare.

Even more ironic than that, where there was a cap on the
amount of payroll subject to the hospital insurance tax increase,
the Democrats in 1993 blew the lid off of that cap, arguing that
that change would then provide sufficient revenue to protect the
trust fund all the way into the middle of the first decade of the 21st
century. And lo and behold, last week, CBO said the President’s
Board of Trustees in 1995 said, in 2002, we will be in the black by
$5 billion on the Medicare Trust Fund. It turns out CBO is now
telling us we will be $86 billion in the red.

The point is, on that tax, which they tried to gimmick to fix a
problem, they are hemorrhaging. On taking money from the sen-
iors, it was outrageous. And on the gimmick in terms of the tax on
gasoline to make them look good as a response to the deficit, it was
not a good idea, either.

I, frankly, am pleased that whatever the causes, the multiple
causes of the need to focus on this kind of gimmickry has occurred,
allows us to take a look at the way in which the Democrats said
they fixed the problem, compare their attempt to fix the problem
in 1993 with gimmicks like this to the current Majority, and the
Chairman of this Committee’s honest beginning of a fundamental
assessment of the revenue that this government needs and how it
is going to be extracted from its people.

I just want to tell my friend and colleague from California, this
is not normal. You are the focal point for a number of frustrations
because I think you are the one that has focused on the unraveling
of this carefully knit political sweater that the Democrats did in
1993. You are the focal point; you are not the cause. If my col-
leagues spend more time than usual either trying to get you to
claim you are an expert, and we have several panels to follow who
certainly will provide us with far more expert opinion, you are an
expert on your constituents. Your constituents are concerned and
upset.

There are a number of other levels where there is taxation on
gasoline. We hope those other levels address it. We are the Federal
level. They did impose a 4.3-percent tax on gasoline. We can do
something about that today, and I want to thank the gentleman for
his legislation.

Mr. Royce. Thank you, Mr. Thomas.

Chairman ARCHER. Mr. Lewis.

Mr. Lewis. Thank you, Mr. Chairman.


94

Table 1: EIA National and Regional Retail Diesel Fue! Prices
(8 per Galion)
National EastCoast Midwest GulfCoast Rocky Mts West Coast

01-Jan-96 1.148 1447 1.125 1.106 1.203 1.262
08-Jan-96 1.146 4.149 4.120 1.107 1.193 1.261
15-Jan-96 1.4152 1.159 1.426 1AI7 1.191 1.260
22-Jan-96 1.144 1.452 1.416 1.406 1.188 1.255
26-Jan-96 1.136 1.143, 1.110 4,094 1.186 1.247
05-Feb-96 1.130 1.144 1.104 1.088 1.179 1.236
12-Feb-96 1.134 1.142 want 1.093 1.180 1,233
19-Feb-96 4.151 4.168 1.130 1115 4.176 4.238
26-Feb-96 1.164 1.182 1.148 1.125 1.474 1.232
04-Mar-96 1.475 4.190 4.165 4.135 1.187 1.230
11-Mar-96 4.478 4.183 4.163 4.442 4.187 1.226
18-Mar-96 1.172 4.180 4.160 1.139 1.197 1.285
25-Mar-96 1.210 1.231 1.198 1.186 1.213 1.244
01-Apr-96 4.222 4.235 4.208 4.196 4.220 4.268
08-Apr-96 1.249 1.251 1.236 1.218 1.250 1,336
15-Apr-96 1.305, 1.299 4.301 1.265 1.309 1.387
22-Apr-96 1,304 1.297 1.287 1,258, 1,342 1.431
29-Apr-96 1,285, 1.269 1.260 1.214 1.357 1.479
06-May-96 1,292 1.272 1.267 1.216 1.380 1.494

west Gulf Coast Rocky Mts West Coast

National East Coast

Last Year 1.126 4.420 1.403 4.087 4.156 1.260
One Year Low 1,093 4,095 1,069 4.055 1.140 4.24
One Year High 4.305 1,299 4.301 1.265 1.380 1.494
1996 Low 1.130 4.441 4.104 1,088 4.174 1,228

%ch.toMay 6th — 14.34% 11.48% 14.76% 11.76% == 17.55% 21.66%


9

for the American family to $422 out of their household budget
every year, and Mr. Chairman, that is a significant amount of
money for most families.

I think it is also important to clarify the 4.3 cents per gallon is
actually closer to 4.7 cents at the pump because State sales tax is
levied on top of the 4.3-cent pump increase.

It is important for the American people to understand this tax
is not a user fee, unlike the other taxes levied on gasoline. This
does not go into the transportation fund to pay for Federal highway
repairs. It is a tax, pure and simple, and it goes into the general
Treasury.

While 4.3 cents may not seem like a lot to those in DOE, the De-
partment of Energy, I think you will agree, this proposal will pro-
vide real relief to real people trying to make ends meet in a stag-
nant California economy. The tax has a significant impact on the
national economy.

I will just share with you, the cost to the State of California out
of this tax is $550 million a year. While the administration’s gas
tax increase hits all Americans hard, it is especially harmful to
lower income families. According to the Joint Economic Committee,
the lowest income families in America pay four times as much of
their disposable income on gasoline than the highest 20 percent of
income earners.

Further, the tax is costing our economy jobs. According to the
Tax Foundation, the 1993 tax is responsible for the loss of 8,000
jobs in California and the loss of 69,000 jobs nationwide. By repeal-
ing the tax, this legislation will help restore those jobs and restore
the economy, both in California and nationwide.

Recognizing that the fuel tax will result in a loss of revenue of
approximately $30 billion over 7 years, I propose to offset this loss
by reducing funds for the Department of Energy. This legislation
is based on the work of a House Task Force on Energy, findings
of the General Accounting Office, former Energy Department offi-
cials, including two Energy Secretaries.

Specifically, the bill cuts the annual budget of the Department of
Energy by about 30 percent. As you know, the Department of En-
ergy was created by President Carter following the Arab oil embar-
go to solve the fossil fuel energy shortage. They have not solved the
problem. The problem is still with us and so is the Department of

nergy.

The Department has grown into a massive $15 billion bureauc-
racy with multiple missions and questionable priorities. Once the
energy crisis of the seventies passed, the Department was without
a clear mission. As a result, it began a 15-year empire-building
process in which its mission has changed several times. I am going
to share with you the General Accounting Office’s criticism. They
called upon Congress to reevaluate the Department.


77

When we attempt to pass on to our customers this higher cost in the form of fare
increases, we would normally see a reduction in demand for air travel services.

In fact, industry analysts agree that each one percent increase in ticket prices
correlates to a one percent decline in air travel demand.

The industry estimates that passing on this cost results in five million fewer
passengers a year. This occurs because some passengers opt to take shorter trips, via
automobiles, or other modes of transportation, to other destinations, or when some
passengers (particularly business travelers constrained by budget limitations) decide not to
travel at all,

A loss of five million passengers approximates a loss of one person on each and
every flight.

This statistic alone is enough to drop many flights into the loss column, and will
surely result in airlines cutting back -- particularly in markets that have few passengers to
begin with.

Economics will tell you that during the five year period when the airline industry
was losing billions of dollars, government-imposed taxes and fees increased significantly
more, and significantly faster, than any single airline cost.

Mr. Chairman, I join with my transportation industry colleagues today to urge you to
move as quickly as possible to repeal a tax which affects, not only the airlines, our
passengers and our shippers, but quite literally, directly impacts all Americans.

I would be happy to answer any questions you or any member of the committee may
have.


ATTACHMENT 1

Figure 3. Total Federal Subsidies Per Passenger Trip,
Net of User Fees, to Passenger Transportation
Systems and Modes, 1960-1993

(1993 Dollars)

0.33 0.05,
Amtrak Commercial Mass Intercity
air carriers transit bus

‘Source: Nathan Associates Inc.



sevomsreen sea avazson
ae some
soot See
omar scare Congress of the United States
Bouse of Representatives
ashington, BC 20515-2702
OPENING STATEMENT

BY
REP. JON CHRISTENSEN

On
Repealing the Clinton Gas Tax Increase

Before the Committee on Ways and Means
May 8, 1996

Today we are once again keeping our promise to give tax relief to American families.

{As you know, the 1993 Clinton budget levied an additional 4.3 cents-per-gallon tax on
gasoline and other motor fuels. Not a single Republican voted for the package -- the largest tax
increase in American history. Now gas prices are going up, and it’s clear again how painful the
Clinton tax hike is. The gas tax is one of the most regressive we have, hitting middle- and lower-
class working familics especially hard. In fact, the poorest 20 percent of families spend four imes
as much of their income on gasoline than the richest 20 percent.

‘The gas tax is especially burdensome on the people I represent in Nebraska. State and
federal gas taxes in Nebraska add up toa dizzying 44 cents-per-gallon, giving the Cornhusker
State the fourth highest total gas tax in the country, ‘That means the average Nebraska family pays
the government $6.60 for an average tank of gas, money that could instead be invested in their
family’s future.

Icis interesting to note that traditionally federal gas tax revenue has been used for the
construction and maintenance of roads and highways. But the $4.8 billion-a-year Clinton gas tax
hike instead is being fanneled into more big govemment socal programs, proving that Washington
is the world’s worst gas-guzzler.

Tetomwoeneramve cova orcs noe oo 8

es
Wasmaron De 301s ‘uma NEI
"oon, marco nEcreUD Pure ‘aan sa aoe


1

THE CONCORD
COALITION
Crrizens’ COUNCIL

1019 19th Street N.W, Suite 610 Washington D.C. 20036
202 467 6222 © (Fax) 202 467 6333

STATEMENT BEFORE THE COMMITTEE ON WAYS AND MEANS
ON LEGISLATION TO REPEAL THE FUEL TAX

May 8, 1996

The Concord Coalition Citizens Council opposes repeal of the 4.3-cents-per-gallon
transportation fuels tax levied as part of the 1993 deficit reduction effort. Repeal would make it harder
to balance the federal budget.

Outright repeal would reduce revenues by nearly $34 billion over seven years. Suspension of
the tax through the end of December, 1996 would reduce revenues by nearly $3 billion.

If offsetting savings were not enacted, the deficit would be increased by those amounts plus
interest on the increased debt. Even enacting dollar-for-dollar savings offsets would not “neutralize”
the impact that repeal ofthe fuel tax would have on efforts to balance the budget. This is because the
budget savings being considered to offset the revenue loss from repealing the fuel tax are already
identified and earmarked as part of the package of policies intended to balance the budget. If these
‘budget savings are used instead to pay for the fuel tax repeal, they would no longer be available for
balancing the budget.

We are also deeply concemed that repeal of the 4.3-cents fuel tax would undermine the climate
of serious work on deficit reduction that has developed since the last election. Cutting any broad-based
tax while the nation is running chronic deficits defies common sense, Concord believes that Congress
and the President should enact a legitimate plan to balance the budget first and only then consider tax
cuts ~- including fuel tax cuts.

Itisa sad commentary on the depth of commitment to balancing the budget that after a year of
hard work, a balanced budget plan still has not been adopted, while after scarcely a week, a bipartisan
stampede to pander to motorists is being allowed to undermine deficit reduction efforts.

‘What's even worse, the debate over the price and supply of gasoline is occurring at a time when
fuel costs in the U.S. are well below their historical average and when market factors already seem to
be driving down the cost of gasoline without a fuel tax cut. In any event, gasoline price fluctuations
‘week to week and even neighborhood to neighborhood vary enough that repealing the 4.3-cents-per-
gallon fuel tax would not be clearly identifiable atthe pump, even if it wete infact fully passed through
to consumers.

There are no sound economic reasons to repeal the 4.3 cents of gasoline tax increases. The
‘government should let market forces work.

enn

Artin temas Snint felaeif n ssday falae euratn


81

The regressive nature of the tax is exacerbated by the
dramatic increase in diesel fuel prices over the past year. In
April 1995, the nationwide average price of diesel fuel was $1.10
per gallon. By April 15, 1996 the nationwide average price had
increased to $1.30 per gallon. Many bus carriers have long tern
contracts for services, and they are unable to renegotiate
increases based on variable fuel costs. Repealing the 4.3 cents
tax would help to alleviate the pressures imposed by the fuel price
surge.

Intercity bus passengers can ill afford to pay this additional
tax, and the financially strapped intercity bus industry cannot
afford to continue paying this tax, particularly when it provides
no benefit for bus operators.

Bquitable Treatment for the Intercity Bus Industry

Last summer, when I testified before Congress on the federal
deficit reduction fuel tax, I asked for equity among modes. If the
Congress were going to extend the exemption for airlines, or expand
the exemption to Amtrak, I asked that the bus industry receive the
same treatment. Now, the leadership is proposing to solve these
equity problems by repealing the tax for all modes. ABA believes
that this is the most equitable solution available.

For the two year period beginning October 1, 1993, the
intercity bus industry paid the 4.3 cents fuel tax while the
airline industry was exempt from the tax. Airlines have only
recently begun paying the tax, and they have sought to extend their
exemption in perpetuity, ostensibly due to their industry’s
precarious financial health. Amtrak has also sought an exemption
from the tax.

The bus industry competes directly with the airline industry,
yet the bus industry has paid this tax all along while the airlines
have not. Moreover, since deregulation in transportation markets,
and the advent of regional airlines and discount air fares, that
intermodal competition has increased markedly. Discount air fares
have not only hindered the profitability of airlines, they serve as
a check on bus fares as well. Thus, the bus industry suffers from
the same precarious financial condition as the airline industry.

For example, according to the former Interstate Commerce
Commission, for the first six months of 1995 (the latest period for
which data are available), the top ten regular route intercity bus
carriers had a combined operating ratio of 104.92, i.e@., they
incurred $104.92 in costs for every $100.00 in operating revenue.
For Greyhound Lines, Inc., by far the largest carrier in the bus
industry, and the only nationwide carrier in the industry, the
operating ratio was 107.66 for that period. The bus industry is no
stranger to tight margins and bottom lines in the red.

The bus industry also suffers froma striking disparity in net
federal subsidies by passenger transportation mode. As compared by
Robert R. Nathan Associates in a July 1995 report,’ the airline
industry receives a net federal subsidy’ of $6.38 per passenger
trip, Amtrak receives a net federal subsidy of $54.88 per passenger
trip, and the bus industry receives a net federal subsidy of five
gents per passenger trip. See Attachment 1.

1 my 9}
ustry, Robert R. Nathan Associates, Inc., Arlington, Va.,
July 1995.

2 A "net federal subsidy" is the aggregate amount of
federal spending on infrastructure and operating subsidi:
received by a mode minus the amount of federal user taxes paid by
the mode.



107

Mr. Harper, in fairness, said this is a complex issue. Mr.
Donohue, in fairness, said they would put heat on the oil compa-
nies.

I think it is a legitimate question for the Minority to ask, will
there be relief at the end for the consumer? This is an entirely le-
gitimate question to raise, and what better place to have those is-
sues crystallized than right here at the Committee level.

Mr. Donohue, you said with some assertiveness that you could
put heat on the oil companies to ensure that this was, in fact,
passed on to the consumer. Would you care to elaborate?

Mr. DONOHUE. I would, Mr. Neal. If I might just digress for one
sentence, because I was hoping you were going to be here. I wanted
to say, on behalf of the trucking industry, and I think on behalf of
some others that are sitting at this table, that your work on behalf
of the meals deduction issue, with our employees, the folks making
$25,000 to $35,000 or $37,000, the long-haul truckers who drive
around this country and are required to be away by DOT law and
by their jobs and therefore have to eat away all the time and have
very simple meals—they are not eating at Rive Gauche or Chez
Francois or something——

Mr. NEAL. Neither are we anymore. [Laughter.]

Mr. DoNoHUE. Yes, I understand. That is your fault, not mine.
{Laughter.]

But, Mr. Neal, I just want to say that that makes a huge dif-
ference in their take-home income when it cannot be deducted, and
I just want to thank you on behalf of our industry. It was a first-
rate effort.

Mr. NEAL. Thank you for reminding me. I might direct a ques-
tion to the Chair. Mr. Chairman, will we be getting to those issues,
do you believe, before the expiration of this Congress?

Chairman ARCHER. I certainly do hope so. In fact, I contemplate
that in budget reconciliation we will once again have a tax package
and be able to consider those very issues. I cannot guarantee the
gentleman that the President will sign it into law.

Mr. DONOHUE. Now to your question. We had one of the major
oil companies on our television show yesterday, Mr. Tell, who is
president of the Communications Group of Texaco and who is the
head of the Highway Users Federation this year. He really under-
stands transportation.

We heard all of his problems that you heard today about supply
and refineries and all that sort of stuff. Those of us that buy fuel
and our members that buy fuel on a regular basis keep very careful
track of those matters. If all of a sudden we take away 4.3 cents
of our tax and that is filled up with an immediate price increase
that is not accompanied by some problem in a refinery or a supply
issue which we are able to track, I am sure that our individual
companies—and Carol Hallett made the point—cannot buy fuel col-
lectively. Although we have thought about maybe getting a busi-
ness together to do that—our individual companies will put tre-
mendous heat on the oil companies to explain their pricing, and if
it became a practice that was widespread, I am sure they would
ask their association to intervene with the appropriate government
officials.


92

IV. THE 4.3-CeNT GENERAL FUND FUEL TAX SHOULD BE REPEALED IMMEDIATELY

The trucking industry has willingly paid highway user fees that are in fact used to
build highways. A good highway system is good for all citizens and for the nation’s
economic well-being, and trucking is willing to do its part to improve and maintain that
system.

But there is no justification for singling out businesses and individuals for a special
burden of deficit reduction based on how much fuel they consume for transportation. The
general fund fuel tax, which falls only on transportation fuel, should be repeated
immediately. The impact on the budget is minimal, only 0.3% of this year’s $1.6 trillion
budget, yet the burden on highway using small businesses is substantial, particularly when
fuel costs are squeezing many of these businesses to the edge of extinction. This tax also
falls unfairly on the poorest automobile drivers who are least able to absorb this cost.

Even the treasury gets some benefit from repeal of this unfair tax. The Joint
Committee on Taxation staff estimates that 25% of the revenue loss from dropping the 4,3
cent tax will flow back to the treasury in higher income and payroll taxes. That’s because
consumers will spend the savings at the fuel pump on other goods and services, which will
add to employment and profits in the industries supplying those products.

‘The savings will show up in a variety of forms. The most immediate impact of
course will be right at the gasoline pump and will be greatest for families who use practical
but fuel-thirsty minivans and station wagons. These same families will also save when the
tax is no longer passed on by shippers in the price of milk, clothes and other goods they
buy. They will save again on travel costs, whether by family car or in the costs embedded
in the price of a bus, rail or airline ticket. Families that relocate will see the savings in their
moving-van costs. The total savings will be about $100 per year for a family of four.
That's a genuine, family-friendly tax cut--with no complicated phase-ins, phase-outs or
eligibility questions.

V. REPEAL SHOULD BE IMMEDIATE AND PERMANENT IF POSSIBLE

The repeal of the 4.3 cent tax should take place immediately to provide relief when it
is most urgently needed to counter today’s soaring fuel prices. Because the tax on highway
fuels is imposed at the terminal rack where tank trucks pick it up for delivery to retailers
and bulk fueling facilities, the repeal will be reflected in the price that users pay within
days.

If possible, the repeal should also be permanent. Too many taxpayers now must
contend with the uncertainty of temporary income and excise tax provisions. This much-
needed repeal should not be added to the list of provisions that lie in legislative limbo.
However, we recognize that permanent repeal may take longer to work through the
legislative process. Therefore, we would support an immediate but temporary repeal if
Congress needs more time to work out permanent repeal.

VI. CALIFORNIA SITUATION DESERVES ADDED ATTENTION

Prices have been rising especially fast in California in the past few weeks. In fact,
since April 15, when ATA began daily, state-by-state tracking of diesel prices at both the
terminal rack and the retail fuel pump, national prices have drifted down slightly but prices
in California have continued upward almost without interruption. Diesel now costs 31 cents
per gallon more in California than in the nation as a whole, according to the latest daily
survey of 4000 truck stops by Computer Petroleum Corporation. (See Table 2 and Figure
2.) Because California is such a huge market itself and is the point of origin or destination
for so much of the nation’s domestic and international freight, these price differentials are



60

Having said that, I also come from a State that is still in reces-
sion, is beginning to get involved in the new world of trade—25
percent of our State product is in trade—and we are really inter-
ested in reducing the deficit so that the small businesses that are
popping up in Connecticut and the small tool companies that are
making it have money that small businesses can use. So we are
very interested in this.

What I see here, and Mr. Verleger, tell me, since you have stud-
ied this question, what I see, by the 4.3 cents going directly into
reducing the deficit, we have a guarantee that will happen.

Mr. VERLEGER. I believe that is the way the law is written.

Mrs. KENNELLY. So it happens. But if we repeal the gas tax,
there is a lot of questioning here today whether the consumer, in
fact, would ever see it because of the seasonal uses of gas. After
Memorial Day and on, you see prices often going up because of the
high use. We have had a winter that was very long and we have
had the changeover to gasoline, so we do not have any guarantee
there.

Mr. VERLEGER. That is correct.

Mr. SHERBERT. From a marketing point of view, that may be
true, that you do not have it, but whatever price I will be posting,
I have to assume it will be 4.3 cents less than I would have been
posting otherwise. I am beginning to get the feeling that since I am
here today, everybody is going to believe that at least the dealers
would pass it on, but the oil companies are not here, so they will
just say they are not going to do it. I think they will do it. They

ave——

Mrs. KENNELLY. But Mr. Sherbert, is that in your hands to do
if it does not, in fact, happen before? If, as I said, the people who
originally sold the gas do not reduce the price, will you be able to?

Mr. SHERBERT. You are right. Anyone along the chain that would
choose to reap some unmerited profits off of this could do it, but
with the way public relations is today, I cannot imagine an oil com-
pany taking that risk right now. They are already taking all the
heat they can possibly take, and from us, too.

Mrs. KENNELLY. Mr. Sherbert, I have been through this raising
of gas prices a number of times and I wish I had the faith of those
up the stream, more faith in them than I do today. I certainly hope
you are right. But I think history shows there is no guarantee they
will pass on the reduction.

Mr. SHERBERT. If they do not do it, then they are wrong.

Mrs. KENNELLY. You are right.

Mr. VERLEGER. Congresswoman, I am struck by the fact that, in
part, price is set by the capacity to make gasoline. EPA has made
it very difficult to import gasoline. Indeed, we lost in the World
Trade Organization for good reason, for unfairly disadvantaging
foreign refiners.

If we lose any more refining capacity this year, if a cat-cracker
at some refinery goes down, supply is simply going to be limited.
As every Member of this Committee knows, when the supply is lim-
ited, price increases. So I do not think it is fair to say that the in-
dustry is trying to pocket the tax. This is the force of supply and
demand——

Mrs. KENNELLY. I know that, sir. I know it is the marketplace.


56

Mr. HERGER. Thank you, Mr. Sherbert.

Mr. Verleger, in your written testimony, you state that since the
tax cut will affect neither supply nor demand, you conclude it
would do nothing to affect retail prices. My question is, Are you
saying that taxes, unlike other costs of production or sale, have no
effect on the price of gasoline?

Mr. VERLEGER. Sir, it depends, as you have heard undoubtedly
many times here, on the elasticity of supply. Next fall, after Labor
Day, there will be some flexibility in the supply side. Right now,
there is essentially no elasticity in the supply of gasoline. The prob-
lem has been created primarily by EPA.

Currently, there is no flexibility to increase supply. We are living
on the hairy edge. If we have one more fire at a major refinery, we
will have substantially higher prices because there is no flexibility
on the supply side to so regulate the system. If the price were to
fall with a tax cut, there would be more demand. However, price
would have to increase again because now a new supply could be
available.

It depends, sir, on the supply elasticity. There is just no flexibil-
ity right now. That is why I said the price paid by consumers
would not change. That is why Bill Niskanen, chairman of CATO,
said the same thing in this morning’s Washington Post. If there is
no flexibility in gupply, then a tax cut is not reflected in lower
consumer prices. If there is flexibility in supply, then the consumer
would see a lower price.

Mr. HERGER. What time period are we talking about? I guess a
further question is, Do you believe that an increase in the gas tax
would also have no effect on the retail prices?

Mr. VERLEGER. It is interesting that in 1993, we had an increase
in the retail price because, essentially, there was some cut in sup-
ply in October. But by December 1993, the retail gasoline price
averaged—and I agree with the previous speaker’s statement about
averages being a sin—about 5 or 7 cents lower than they had been
in September, before the tax was imposed. So the tax went in effect
in October, and by December, it had vanished, as had 3 or 4 more
cents per gallon.

Mr. HERGER. Mr. Sherbert, you are in the business yourself. Do
you agree with this comment?

Mr. SHERBERT. No, I do not. I agree that that is probably a fact,
that the prices were 5 to 7 cents cheaper, but they would have been
9 to 11 cents cheaper if that tax had not been imposed at that time.

Mr. HERGER. Mr. Coyne.

Mr. Coyne. Thank you, Mr. Chairman.

Mr. Sherbert, last night, I had the advantage of watching you on
television with two other industry experts and one of them pointed
out that the price of crude oil had dropped from $25 per gallon in
April to $21 per gallon, and that it is anticipated that prices at the
pump could come down relatively soon. What do you think about
that?

Mr. SHERBERT. It is my feeling that that will happen, and we
have these seasonal rises and falls every year. What happened this
year, of course, is that we had a double increase, and I blame that
on the speculation of the oil companies about where they were
going to get the product and the fact that they are keeping their


18

ergy to pay for a recent tax increase that you and I both agree goes
not into paying for maintenance of the highways but instead goes
into the general fund.

Mr. LEVIN. I understand that.

Mr. Royce. So I think, in concept, we have a good bill here.

Mr. Levin. By the way, Mr. Chairman, when we were talking
about the Energy Department, that is not within our jurisdiction.
We are not supposed to be talking about that.

I am asking you if any part of the gas tax increases before 1993
did not go for highway maintenance, would you favor adding that
to the 4.3 cents?

Mr. Royce. I think the sensible thing to do is to move this bill
as it stands.

Mr. Levin. I do not know why you will not answer. It may be
because the Majority Leader in 1990 supported an increase in the
gas tax. I think we had better go back and check whether all of
that went for highway maintenance and see if there is any consist-
ency on your side here or whether this is a political ploy without
any assurance that the consumer will benefit.

So I will finish by asking you this. You said you would support
an amendment that would assure the consumer benefited from this
repeal. Do you have any idea how we might do that?

Mr. Royce. No, I do not.

Mr. LeviIN. So why do you support something if you have no idea
the consumer will benefit?

Mr. Royce. Could I share with you, Congressman, that I would
be happy to work with you or to try to work out such an amend-
ment, but I think the point here, to go back to the point you are
making, is that none of this tax increase went into maintenance of
the highways in any way, and therefore | think it very clear why
there should not be an increase paid by the motoring public that
does not end up in any way benefiting them through use on the
highways.

So to try to answer both your questions, I think it very clear this
tax should be repealed and I would be happy to work with you.

Mr. LevIN. Let us see if we can find a way. You do not have one
at the moment that would assure the consumer would benefit, so
you are just kind of poking in the dark.

Thank you.

Chairman ARCHER. Ms. Dunn.

Ms. DUNN. Thank you very much, Mr. Chairman.

I very much appreciate, Mr. Royce, your making these points on
behalf of the consumer. I agree with you that if we can get rid of
the 4.3-cent gas increase that came from the 1993 Clinton budget,
that we will benefit employers, job holders, and consumers in gen-
eral.

You talked about folks who own cars, motorcycles, or trucks
being relieved of a burden that was put on the cost of gasoline in
1993, but I think we also have to consider some other very impor-
tant costs that through support of your bill would be given back to
the taxpayer and those are the indirect costs.

I live in a State that is very trade oriented, and so this cost of
fuel is paid by truckowners and the aviation industry and is paid
by every consumer who purchases an item that has been made in


47

There are, as you know, a host of problems with the RFG program. However, the basic
difficulty with the regulations is they require more product segregations. This requirement ties up
existing storage facilities and limits distribution flexibility. The consequence is that companies
have to hold larger total inventories to meet a given level of total demand, while limiting the
possible impact of sudden changes in consumption or production. If 300 million barrels of stocks
was the correct amount before the transition to RFG, 400 million barrels may be the right number
today.

‘However, as noted above we are operating with fewer total stocks, not more. Thus the clean
‘water regulations and the RFG regulations are in conflict. The result is price volatility

Of course, the problem could be resolved by importing more products. However, the ability
10 do this has been reduced by regulations included in the RFG program, which have effectively
boosted the costs incurred by foreign refiners who participate in the market. The net effect has
been to limit imports. '

REFINERY ACCIDENTS

Bad luck at the nation’s refineries has also contributed to price volatility. For the last several
years, refiners have operated at historically high utilization rates. Experts have marveled at the
industry's success and, at the same time, crossed their fingers because they recognized that
refineries can experience disruptions. This year it appears the industry's luck has run out. During
the period of peak distillate consumption, several East Coast refineries experienced disruptions
that caused them to cut output, And this spring, several West Coast refiners have experienced
outages that led to reductions in gasoline and heating oil production.

Such disruptions would have caused price changes in the past, but the effect would have been
smaller because there was greater fungibility among products and larger inventories. Today, the
mandated shift to a wide variety of products combined with the higher risk of holding inventories
‘exacerbates the impact of refinery problems

‘Unfortunately, the problems that have occurred this year have come about early in what is
known as the driving season. This fact should concern you, the public, and those policymakers
who are awake. The loss in productive capacity threatens to leave us unprepared for the
‘summer — esp cially if there are more refinery problems

CONSUMPTION

The third factor contributing to recent market events is increased consumption, Here there is
a big surprise that I would like to bring to every bureaucrat's attention: consumers drive more
‘when their income increases. Consumers also like comfortable cars. For years, environmental
advocates have pointed to Japanese and European automobile owners as being environmentally
correct because they did not buy big cars, At least they did not buy big cars until their incomes
increased. Recently, sales of full-sized passenger vehicles in these countries have increased
dramatically. If you want proof, just visit Tokyo. The freeways there are packed with large cars
crawling along at 5, 10, or 15 kilometers per hour, depending on road conditions.

In the United States, consumers have showm a strong preference for vans and sports utility
vehicles. Air conditioning is also a popular option. As a consequence, consumption per car is
increasing again after remaining stable for years. 1 expect it will continue to increase.

‘A further stimulus has come from the removal of the “double-nickel” speed limit. As most of
‘you know, average speeds have picked up noticeably since the 55 mph speed limit was repealed.
Fuel economy per vehicle has declined as speed has increased.

‘Unfortunately, the members of Congress who restored the higher speed limits did not bother
to grant relief to the refining industry in terms of making or storing more gasoline, The people
‘who produce the fuel are expected 10 make do under the more rigorous program,

The consequences are not surprising Consumption has increased while limits on storage and
production have remained fixed. Bottlenecks have occurred. More bottlenecks will occur.


51

‘The positive impact of speculation could be seen at its best during the period in which
Metalgesellschaft dominated the market — say, from the spring of 1993 to the spring of 1994
‘Although that firm’s actions were referred to in the press and some academic articles as hedging,
(MG was in fact engaged in a very large bet on higher oil prices — a bet that could have put many
firms out of business. MG's bet took the form of being long gasoline and heating oil futures. Its
‘trading pushed up forward prices and provided an enormous incentive to make gasoline and hold
inventories, One firm, Tosco, even acknowledged that the incentive provided by the market
caused it to increase production of gasoline and heating oil at its Bayway refinery by 50 percent.

‘The beneficiaries of MG's bet were consumers and marketers. ‘The increased demand for
futures led to greater production and lower prices

‘Unfortunately, there are too few speculators today. As a result, the market provides less of an
incentive to manufacture and store gasoline. Consumers and marketers are the losers

‘The decline in speculation is directly related to the problems cited above with REG — in other
‘words, government regulation. Surprising as it sounds, speculators want the same thing the
industry wants — a fair market. One of the elements of a fair market is liquidity. Speculative
funds want to be able to open and close positions without affecting prices Thus they will
participate in large markets but stay away from small markets.

‘The shift to RFG and the government's poor management of the transition has limited
liquidity in the market. Open interest in gasoline futures had dropped by 70 percent from peak
1993 levels. Speculation is down and prices are up. You know who has lost.

CONCLUSION

[Let me conclude then by suggesting that many of the causes of the current market turmoil can
‘be found in Washington and in the capitals ofthe SO states. Regulation adopted relating to the
introduction of reformulated gasoline, higher costs associated with the storage of petroleum
products, last minute changes in the RFG program, and increases in speed limits have contributed
to the market volatility both directly and by cutting into the liquidity of the futures market. Bad
luck and cold weather have also had a significant role in 1996. Finally, the aggressive push for
increased financial returns and the focus on shareholder value have caused companies to withdraw
‘cash from inventories, causing further chaos.

What can one see for the future? My instinct is to say more ofthe same. I see no hope that
the governments will come to understand the effects of their actions any time soon, Even if
‘government officials did understand, I would not expect them to act because in my view they just
do not care. T also do not expect to see suppliers willingly increase inventories again, The day
‘when the President can call on the industry to achieve an inventory level of 240 million barrels of
heating cil by September 1, as Jimmy Carter did in 1979, is past. Instead, managers will be driven
by the need to maximize shareholder value, The result will be more efforts to cut stocks.

‘This brings me then to the role of the independent marketer. What should you do? While it is
impossible to offer specific answers, let me sketch out a few thoughts.

First, you should not count on your suppliers to hold inventories for you at theit expense
Inventories are a form of insurance, which in many cases have been offered free to marketers
‘The day of such free insurance is over. This change may mean that you want to hold larger
inventories — especially if you have the facilities, The purchase of inventories as strategic short-
term assets may yield very large returns.

Second, do not expect the market to yield uniform prices or costs. The shift to just-in-time
inventory strategies and the chaos in government regulation will create enormous differences in
costs, Expect these differences to be reflected in the market place and develop strategies to deal
with them, Your business is becoming more and more like the airline business, where a group of
traditional suppliers are being forced to compete with low-cost carriers. The firms that survive
“will be the ones that learn to cope with the change — not fight it

Third, innovate, This January I was asked to investigate the implications of the deregulation
of gasoline marketing for MITI, the Ministry of Trade and Industry, in Japan. In preparing my
paper, I looked into the developments that had occurred in France over the last ten years. There a
new form of marketer — the hypermarket — had totally changed the market in that period. In
1985 there were roughly 60,000 gasoline stations in France and 55 percent were owned by



80

STATEMENT OF SUSAN PERRY
SENIOR VICE PRESIDENT-GOVERNMENT RELATIONS
AMERICAN BUS ASSOCIATION

BEFORE THE
COMMITTEE ON WAYS AND MEANS
UNITED STATES HOUSE OF REPRESENTATIVES

MAY 8, 1996

Mr. Chairman and Members of the Committee:

My name is Susan Perry and I am the Senior Vice President of
Government Relations for the American Bus Association (ABA). Thank
you for the opportunity to testify in favor of repealing the 4.3
cents per gallon federal fuel tax.

ABA is the national trade association of the intercity bus
industry, representing more than 700 bus and tour company members
in the United states and Canada. Most of these companies are small
businesses, many of which are family owned. They operate regular
route, charter and tour, airport express, special operations, and
contract services. The ABA membership also includes another 2,300
travel and tourism organizations and suppliers of services and
products to the bus industry.

The intercity bus industry pays approximately $7.4 million per
year in additional taxes because of the 4.3 cents per gallon
surtax. The industry operates about 945 million bus miles and
consumes about 172 million gallons of diesel fuel each year. The
number of gallons multiplied by 4.3 cents per gallon yields a tax
revenue of approximately $7.4 million.

ABA strongly supports repeal of the 4.3 cents per gallon
federal fuel tax for three reasons. First, and most important, the
fuel tax is a regressive tax with a disproportionately adverse
effect on the typical bus passengers, including the elderly, the
young, the poor, and those in rural America. The regressive nature
of the tax is exacerbated by the recent dramatic rise in fuel
prices.

Second, for the first two years it was in effect, until
October 1995, the 4.3 cents tax was paid by the bus industry but
not by the airline industry, which competes with our members
directly in intercity passenger markets.

Third, the $7.4 million in tax revenue paid by the bus
industry (or any of the other revenue raised by the 4.3 cents
surtax) has never been used for highway construction and
maintenance, unlike other federal fuel taxes that have been placed
into the Highway Trust Fund since 1956.

For these reasons, the tax should be repealed immediately.

The Regressive Fuel Tax Hurts Bus Pi

engers Disproportionately

ABA supports repeal of the 4.3 cents a gallon federal fuel tax
because it is regressive, and therefore imposes a disproportionate
burden on bus passengers. The intercity bus industry transports
the elderly, the young, members of the military, those in rural
America, and those in the lower income brackets. In fact,
Greyhound’s demographic research indicates that 44 percent of its
passengers have annual incomes of less than $15,000. For these
Americans, the fuel tax, included as part of the cost of
transportation, takes a higher portion of their incomes than it
does for the more affluent Americans who travel on Amtrak or
airlines or in private automobiles.


13

Chairman ARCHER. Thank you, Mr. Royce.

Are there questions from the Members?

Mr. Gibbons.

Mr. GIBBONS. Mr. Royce, you say the California gasoline tax is
29.1 cents per gallon, something like that?

Mr. Royce. State and sales, yes.

Mr. GIBBONS. The State gasoline tax. Have you done anything to
try to get California to reduce its gasoline tax?

Mr. Royce. Yes, I have, Mr. Chairman. As a matter of fact, I
talked with the new speaker of our State assembly and he has in-
troduced a bill in the State legislature to try to roll back a recent
increase in the California State tax, as well, yes.

Mr. GiBBons. At least you are consistent. Do you really think the
oil companies are going to pass this savings through to the
consumer?

Mr. Royce. Mr. Chairman, I had a conversation with a constitu-
ent of mine the other day and he said, “You know, I remember
when gasoline prices were 50 cents a gallon,” he said, “but I guess
it is going to be pretty difficult to get prices down that low again
if the price we are paying in Federal and State taxes is 47.5 cents
a gallon.”

at I want to focus on here, and what I want to remind
you——

Mr. GiBBons. Your constituent gave that information to you?

Mr. RoYcE [continuing]. Is the total assessment that the Federal
Government is taking out of the pockets of taxpayers with respect
to how high these taxes really are.

Mr. GIBBONS. No, the gasoline tax has always been considered to
be a user fee to help finance the infrastructure of this country. Un-
fortunately, the last time the gasoline tax was raised—and the gas-
oline tax is inflation adjusted, probably about where it was in the
thirties when I used to pump gas—we had to put it in the general
revenue fund.

I want to put it back in the trust fund. That is where it should
have been 2 years ago. That is where it ought to be now. Anybody
that thinks the infrastructure of this country is overbuilt, as I say,
just has not been using it. Do you have too much infrastructure in
California, too many highways, too few potholes, too few crumbling
bridges?

Mr. Royce. But I am just pointing out, Mr. Chairman, the in-
crease I am trying to reduce here, the tax from 1993 does not go
into solving any of those problems. It goes into the general fund.

Mr. GIBBONS. It ought to be put in the trust fund, and I am going
to have an amendment before this Committee to put it in there.

Mr. Royce. I am pointing out, Mr. Chairman, if you look at the
increases in our Department of Energy, if you look at the General
Accounting Office report, I think it is very credible that we look at
reducing that agency, that government agency, to pay, so that the
American people will have this reduction at the pump.

Mr. GiBBoNS. I am not going to argue with you about the Depart-
ment of Energy. I am not an expert on it and do not pretend to
be. But I do know the infrastructure of this country is falling apart
all around us. It is costing us a lot of money because it is falling
apart.


55

Statement of Mr. Melvin Sherbert
Chairman, Legislative Committee
Service Station Dealers of America and Allied Trades

Mr. Chairman and members of the Committee: My name is Melvin
Sherbert and I operate two Amoco service stations in Prince George’s
County, Maryland. I am past president of the Service Station Dealers of
America and Allied Trades and currently serve as the chairman of the
Association's Legislative Committee. SSDA-AT is a national federation of
state associations representing tens of thousands of small business owners
and operations nationwide.

SSDA-AT supports the proposed repeal of the 4.3 cents per gallon
enacted in 1993.

From the inception of the interstate highway system, SSDA-AT
supported the concept of a user fee with revenues directed to the Highway
‘Trust Fund.

In 1993, SSDA-AT opposed the 4.3 cent levy because this money was
directed to deficit reduction. In our opinion, this violated the agreement
between the government and the motoring public. It set a bad precedent and
should now be corrected.

We believe that if the tax were to be repealed that the savings would be
passed on immediately and directly to the motorist. Service station dealers
operate on a cents per gallon rather than a percentage of the cost of product.
Thus, the savings to motorists would be passed on as soon as the repeal
would be realized.

SSDA-AT concurs with the American Highway User Alliance that the
nation’s roads and bridges need improvement. If not repealed, the 4.3 cents
per gallon should be directed to its proper place ... The Highway Trust
Fund.

Motor fuel tax increases for deficit reduction is bad policy. We
opposed the increase in 1993 and we support the repeal today.

Thank you.


ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

FOR IMMEDIATE RELEASE CONTACT: (202) 225-1721

May 1, 1996
No. FC-16

Archer Announces Hearing
to Examine the Impact of the
1993 Tax Increase on Transportation Fuels

Congressman Bill Archer (R-TX), Chairman of the Committee on Ways and Means, today
announced that the Committee will hold a hearing to examine the effects of the 4.3 cents per gallon
tax on transportation fuels imposed by the Omnibus Budget Reconciliation Act of 1993. The
hearing will take place on Wednesday, May 8, 1996, in the main Committee hearing room,
1100 Longworth House Office Building, beginning at 10:00 a.m.

In view of the limited time available to hear witnesses, oral testimony for this hearing will be
heard from invited witnesses only. However, any individual or organization not scheduled for an
oral appearance may submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing.

BACKGROUND:

‘The Omnibus Budget Reconciliation Act of 1993 imposed a 4.3 cents per gallon tax on
gasoline and other transportation fuels. Revenues from this tax are deposited in the General Fund of
the U.S. Treasury rather than dedicated to the Highway Trust Fund or similar trust funds.

In announcing the hearing, Chairman Archer stated, "The recent increase in gasoline
prices has renewed public attention to the 1993 tax on transportation fuels. This regressive tax
increase hit American families directly in their pocketbooks. Accordingly, the Committee
should examine the impact of this tax increase and explore its repeal.”

EQcus:

The focus of this hearing will be to examine the effects of the 4.3 cents per gallon tax on
transportation fuels on American families and businesses.

DETAILS FOR SUBMISSIONS OF WRITTEN COMMENTS:

‘Any person or organization wishing to submit a written statement for the printed record
of the hearing should submit at least six (6) copies of their statement, with their address and date
of hearing noted, by the close of business, Wednesday, May 15, 1996, to Phillip D. Moseley,
Chief of Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 Longworth
House Office Building, Washington, D.C. 20515. If those filing written statements wish to have
their statements distributed to the press and interested public at the hearing, they may deliver
300 additional copies for this purpose to the Committee office, room 1102 Longworth House
Office Building, at least one hour before the hearing begins.


72

Mr. FLEENOR. As I stated earlier, I did not conduct that report.
But in general terms, an introduction of a tax will create a tax
wedge and introduce an inefficiency in the economy and that will
result in the loss of jobs.

Mr. CarDIN. But the truth is that the economic reports during
the 1993 period show tremendous job growth.

Mr. FLEENOR. But you are looking at the—sure, I mean, jobs
were lost, but these were offset by other jobs which were created.
You cannot look at, sir, the macro statistics and say-——

Mr. CaRDIN. That is our exact point. Look at the deficit. If this
has an impact on increasing the deficit, that is going to have an
impact on our economy, also.

Thank you, Mr. Chairman.

Chairman ARCHER. The gentleman’s time has expired.

The Chair would announce that I would like to complete this
panel’s testimony before we vote and we will return immediately
after the last 5-minute vote.

Does the gentleman from Missouri wish to be recognized?

Mr. Hancock. i will be brief. Mr. Chairman, I would like to ad-
dress Mr. Keating for just 1 minute. He is the chairman of the Na-
tional Taxpayers Union.

Have you noticed in the conversation here today, Mr. Keating,
that we talk about consumers? We have not mentioned very much
about taxpayers. I get a feeling up here that the other side of the
aisle thinks that those are two different people. They say, well, it
is OK to raise the tax on the taxpayers and that is not going to
affect the consumers. Is there a difference between consumers and
taxpayers?

Mr. KEATING. There is certainly a large overlap. There may be
some difference somewhere, but I would say generally, the class is
quite similar.

I do not think there is any doubt that, over the long run, a per-
manent repeal of this gas tax increase will result in lower prices
to the American public and lower taxes paid by the American tax-
payer. I do not think there is any doubt about that.

I would also like to say something about the loss of jobs. In any
economy, you have many different things going on at the same
time. I am sure the Tax Foundation’s estimate was based on isolat-
ing that one change—a hike in the gas tax. The projected loss of
jobs was compared to the number of jobs that would have otherwise
been created. So if you show an overall increase in jobs, that means
you would have had even more jobs had the tax not been adopted.
Ido not see how anyone can believe otherwise.

Mr. HaNcock. Let me just say this. Based on the testimony
today that we have heard, not from you but from the questions on
the other side, we might as well raise the price of the tax 8.2 or
reduce it 8.2 or maybe three times as much and it will not have
any effect. I think it is a little bit asinine to say that. Actually, any
time you raise a tax, whether it is 1 cent, 4 cents, 8 cents, or 12
cents, it is going to have an effect. There is no question about it.
Any time you affect energy, you are going to affect capital and
labor and we are following around with the energy now.

Thank you, Mr. Chairman.


27

trying to make a deliberative decision here. Obviously, we have to
make the same case on the floor and I would like some help. You
are coming here as a Member who introduced a bill to reduce the
gas tax and perhaps you can help us understand how we can bring
the consumer back to what it was 30, 40, 50, or 60 days ago when
it was $1.30 instead of $1.60.

Mr. Royce. And we are in the process——

Mr. MATSUI. If you could give us your rationale, that would help.

Mr. Royce [continuing]. We are in the process here of discussing
some of the market forces which are being debated, are being in-
vestigated. The Air Resources Board in California is looking into
this now.

Mr. Matsul. But what about Washington? They do not have an
Air Resources Board. Explain to me how that——

Mr. Royce. As you know, in California, one of the issues is we
went over to a new type of fuel, a new type of petroleum.

Mr. Matsui. But what about Washington?

Mr. Royce. That is somewhere close to 8 cents, or around 8
cents, I guess, a gallon. We have a situation with a couple of refin-
eries in California that have been down.

Mr. Marsut. So that affected the entire Nation, those two refin-
eries?

Mr. Royce. And we have a refinery, I guess, down in Louisiana.
We have a question on the gross margin on the refineries. We have
a question in terms of expectation that we are going to have ar-
rangements with Iraq that we are going to bring oil on the market.
In the meanwhile, supposedly, everyone depleted their reserves.
There are all these different factors that are being pointed to.

My point, though, is that there is one factor we directly influence
and control and that is the cost of taxation on a gallon of gas.

Mr. Matsut. Who are the experts you are talking to, because I
would like to talk to them, too. Are you talking to any individual
experts on this theory?

Mr. Royce. I think we are getting our information both out of
the newspaper and——

Mr. Matsut. Is that where you are getting yours out of?

Mr. Royce. That is where we are getting a lot of our information,
and from our consultants on the Committees, yes.

Mr. Matsut. I really appreciate this. This expertise that you are
providing us on why the gas prices have gone up 30 cents a gallon
has been very, very helpful, and I appreciate this.

l yield back my time.

Chairman ARCHER. Mr. Thomas. It was Mr. Stark’s time. Does
Mr. Stark yield back his time? I assume he does.

Mr. Thomas.

Mr. THomas. Thank you, Mr. Chairman.

J tell the gentleman from California, I have only been on this
Committee 13 years now, so I do not have a long history of what
has gone on, but it is a pleasure to announce to you that you prob-
ably have been asked more questions based upon your testimony
than any other Member of Congress that has appeared before this
Committee. I do not know what talent you possess, but you cer-
tainly have the ability to engage the attention of the Members of
this Committee.


70

smart thing to do for shareholder value. That is effectively saying
the grocer should reduce the amount of space it has for milk.

Now, the third step the EPA has done is required many different
types of gasoline be distributed. As I think I said to Chairman Ar-
cher, it is 220. That is the number of specifications that Colonial
Pipeline has. That is the artery that brings us our gasoline here.
And EPA refuses to allow commingling of different types of gaso-
ine.

It is as if EPA told that grocer not only do you have to keep one-
half your shelf space empty and our regulations are going to make
you want to have fewer shelves, but you cannot put chocolate milk
in the space where you used to have nonfat milk. The chocolate
milk has always got to be in the same space and the nonfat milk
has always got to be in the same space. What this does is if you
work through the complicated inventory models is almost guaran-
tee that you are going to have shortages and very high prices. That
is what happened out in California. That is what has happened
here on the east coast. That is what has taken the liquidity out of
the New York Mercantile Exchange.

So the first step that really is needed, and I understand it is not
in the purview of this Committee because I have sat here for many
hours over the years, is that EPA should be instructed by Congress
to adopt regulations that allow the industry to use the inventory
management practices that they followed in the past. The result
would still be cleaner air. In addition, distributor flexibility would
be increased.

Then second, EPA must adopt a rational strategy for dealing
with clean water and tankage and storage. Some of the laws are
State laws and some of them are Federal laws. But if they were
changed, and this is just making the regulations work within a
market context, we would get much lower prices.

Mr. CHRISTENSEN. I want to thank you for your testimony. I fully
agree about the overzealous efforts of the EPA and trying to bring
some common sense back into that area that has been severely
lacking over the last 20 years.

Thank you, Mr. Chairman.

Chairman ARCHER. Mr. Cardin.

Mr. CarDIN. Thank you, Mr. Chairman, and I want to thank our
witnesses for their testimony.

I have been listening and trying to understand the rationale for
the repeal of the gasoline tax at this point. I guess I have heard
three explanations. One, it would be good for the economy, that it
could produce additional jobs. Second, it would give taxpayers some
taxes back. And third, this tax is not dedicated to highways.

Now, the third point, we could correct. We could offer a change
in the 4.3 cents to put it into the Highway Trust Fund without re-
pealing the tax, so let us put that aside for a moment and deal
with the first two points that have been made.

I understand there was a study done by Mr. Fleenor’s group that
the 4.3-cent gasoline tax increase would cost this country 69,000
jobs. I am rounding it off. Yet, I am not aware of any verification
that in 1993, our economy lost 69,000 jobs when the gasoline tax
increase went into effect. The information I have seen indicates
that at that time, we had a growing number of jobs even in the en-


63

Chairman ARCHER. That determines the market price of the
product. If the supply is tight and the demand does not adjust to
it, the price of the product will go up. We know that. That is basic
economics.

Mr. VERLEGER. Yes.

Chairman ARCHER. But layered on top of that must be collected
the tax that government levies, whether at the State or the local
level. The tax is not considered in the commodities market which
determines the price of the basic product. The price of the basic
product is determined by market forces, as you have enunciated.

Mr. VERLEGER. Right.

Chairman ARCHER. The tax must then be collected from the
consumer. It is a consumer-levied tax on top of whatever the mar-
ket price is.

When products are imported into this country and they have to
deal with the environmental restrictions and whether there can be
more or less of a flow, the price is not determined by the tax that
is levied by government. It is determined by the market forces that
apply, and we are in agreement on that.

As a result, it is impossible to determine whether the tax has
been passed on or not. This is the point that my colleague, Mr.
McCrery, was saying. The market price can go up or down in a
very short period of time, and we have seen that at the pump, both
from a decline and an increase, dramatic changes at the pump,
going down and going up, within 1 week’s time, within a couple of
days’ time, and I am sure Mr. Sherbert can testify to that.

But no matter what happens to that basic price, the tax must be
collected. Therefore, it will clearly have an impact on the price of
the product at the pump.

If, for example, we embrace the concept that we must have some
sort of a legislated price which shows the price at the pump has
gone down 4.3 cents; and if, in fact, the market price of the product
goes down 4.3 cents, which the futures markets tell us it will, re-
gardless of what we do, the producers could easily say they have
done all the law required and therefore, will not reduce it anymore.
That seems rather silly to me.

We saw this during the time of price controls back in the seven-
ties, where the price control became a floor as well as a ceiling.
Most economists will agree that that can easily happen in the mar-
ketplace because price controls distort the very market that you are
talking about. When you attempt to dictate a price, you find you
have had a counterproductive effect compared to what you would
otherwise have.

It is very interesting to note that historically, prices of gasoline
went down when Reagan removed the price controls. That is a his-
toric fact.

I just think we need——

Mr. VERLEGER. We have no argument there.

Chairman ARCHER. I know it. I think we are in agreement. I am
not trying to argue. I am trying to establish common ground——

Mr. VERLEGER. Fine. I understand.

Chairman ARCHER (continuing). And have this publicly in the
record because this is going to be the issue that we are going to


20

Mr. Royce. What I indicated is that when government—and I
think these were my words—when government increases taxes on
a product or on a service, it is logical to believe the costs to the
consumer are going to go up, and especially when government has
imposed taxes to the tune of 47.5 cents a gallon, it is going to have
an effect.

Mr. RANGEL. Forget what you said then. Let me ask a question
of you now.

Mr. Royce. All right.

Mr. RANGEL. Do you believe if we knock off 4 cents a gallon of
taxes right now, the consumer would receive any decrease in the
cost of gasoline at the pump? Do you believe that will happen?

Mr. Royce. I think it will help drive down the costs if we help
drive down the taxes.

Mr. RANGEL. I do not know what you mean by “help,” but do you
expect as a result of this repeal, this nonpartisan Republican Ma-
jority-Presidential agreement, that political year type of thing. Do
you believe that once that is done, we should have reason to believe
or do we believe that the consumer is going to pay less than he is
paying today?

Mr. Royce. We have reason to believe that lowering taxes on a
product will lower the cost to the consumer.

Mr. RANGEL. Would you support mandating the price at the
pump be decreased by the same amount as we are decreasing the
tax on gasoline? Would you support that we mandate it? Since we
are all guessing and we want to please the consumer, we would not
want anyone just to increase their profits by this and say that
something else increased or we did not know about this or the
President put too much.

Would you support the concept that, and if we cannot do it by
law, we can certainly get language in here that we can expect this
repeal be passed through to the consumer? This is election year
type of talk, and I am prepared to join with you in a bipartisan
way, that with any decrease we have in taxes, the cost at the pump
be decreased by that amount.

Mr. Royce. Yes, I am happy to work with you on an amendment,
to try to work out an amendment.

Mr. HaANcock. Would the gentleman yield?

Mr. RANGEL. I will yield.

Mr. HANCOCK. Are you advocating price controls?

Mr. RANGEL. I am advocating reducing the price of gasoline at
the pump to the American consumer as they get ready to embark
on their spring and summer vacations.

Mr. HANcocK. Are you advocating telling the oil companies that
this is the price you are going to have to charge?

Mr. RANGEL. Between now and election, Mel, I want to reduce
the price of gasoline at the pump and I want to do it any way that
we can, and I do not want people to guess. I would hate to see that
as we—

Mr. Hancock. You do not think that the marketplace will have
any bearing on it?

Mr. RANGEL. Mel, please. I would hate to see—

Mr. Hancock. Thank you.


37

Mr. HERGER [presiding]. Thank you, Mr. Fleenor.

We will now hear from David Keating, executive vice president
of the National Taxpayers Union.

Mr. Keating, your testimony, please.

STATEMENT OF DAVID L. KEATING, EXECUTIVE VICE
PRESIDENT, NATIONAL TAXPAYERS UNION

Mr. KEaTING. Mr. Chairman, my name is David Keating. I am
executive vice president of the 300,000-member National Taxpayers
Union, and we appreciate the opportunity to appear before the
Committee today in support of repealing the 4.3-cent-per-gallon gas
tax increase adopted in 1993.

Repealing this tax will provide real and immediate tax relief to
millions of working Americans. It will do so without the need to file
any new forms to the U.S. Government, which I think is a great
thing.

I recognize it is very difficult for those who favor big government

to give up any revenue. For the past few days, we have heard news

media accounts that repeal of the tax would mean little because it

would mean savings of only some $40 or $50 per year for the aver-

age family. But we can and should do more to provide tax relief.
is should be the beginning of a tax relief program.

T also remind you not to focus solely on averages. Recognize that
averages do not give an honest picture of the help that repealing
this tax would give to many Americans, including those who live
outside ‘metropolitan areas because they cannot afford high housing
costs in the inner suburbs, those who do not have access to feder-
ally subsidized mass transit systems, and those who must use their
cars to drive long distances to work or school.

A few months ago, I am sure many of you read the article in the
Washington Post about how many workers must commute from the
outer suburbs in many cities. There are people who commute from
Winchester, Virginia, to Washington, DC. Obviously, repeal of this
gas tax increase will greatly affect their pocketbooks. Remember,
too, the commuters who must spend hours sitting on so-called free-
ways, burning up gasoline.

It is not simply the tax paid at the pump but the tax paid
through higher prices at retail stores. Virtually everything bought
in today’s stores is delivered by trucks, and truckers must also pay
higher motor fuel taxes from this 1993 tax hike.

Cutting this gas tax will not affect spending on infrastructure be-
cause the 1993 tax hike was simply a revenue raising device and
none of the revenue was earmarked for highway repair or construc-
tion.

Please consider that the gasoline tax is not a true user fee, since
its burdens bear little relationship to the actual use of or damage
to the Nation’s infrastructure. In fact, we could cut the gas tax
even more if Congress were to reform expenditures from the Fed-
eral Highway Trust Fund or to move to a real user fee concept and
reduce general gasoline taxes accordingly.

I think it is clear that cutting gas taxes would also increase our
Nation’s anemic economic growth rate. My written statement dis-
cusses some of the research that has been published on this sub-
ject.


57

inventories so low now, they do not have any depth to respond to
it. But the prices should go down. Now, whether they will go down
the 20-some cents that they went up, I do not know.

Mr. Coyne. But is it realistic to expect that as a result of that
price going from $25 to $21, that at least that would overshadow
any decrease of 4.3 cents per gallon, all other things being equal?

Mr. SHERBERT. Unless someone chose to put it in their pocket,
I think we would have that increase plus the 4 cents, and the deal-
ers are not going to do that, I assure you. Whatever price we get,
we add those 4, 5, 6, 7, 8 cents that we make to it, and that is the
way we are going to continue to do it.

Mr. Coyne. So before too long, we are going to see a price de-
crease at the pump no matter what happens with the 4.3 cents per
gallon?

Mr. SHERBERT. Did you say increase or decrease? I am sorry.

Mr. Coyne. Decrease.

Mr. SHERBERT. We should see a decrease over the course of the
next 2 months, I guess. And I am only an expert, keep in mind,
of what happens at Marlow Heights and in Suitland, Maryland.

Mr. Coyne. Mr. Fleenor, I wanted to address this to the Tax
Foundation. Do you think the budget deficit has come down over
the past 3 years?

Mr. FLEENOR. Yes, it has.

Mr. Coyne. Do you think that the 4.3-cent-per-gallon tax had
any influence on that?

Mr. FLEENoR. I am sure it has, but our point, again, was that
initially, the trust fund was set up as a dedicated user fee and we
have strayed from that principle with the 1993 bill.

Mr. Coyne. Yes, I understand that. You are philosophically op-
posed to using that money. You would rather see it used for infra-
structure. But there is no denying, is there, that the 4.3 cents per
gallon had some influence on reducing the deficit, in your judg-
ment?

Mr. FLEENOR. Sure.

Mr. Coyne. Thank you.

Chairman ARCHER [presiding]. Mr. McCrery.

Mr. McCrervy. Thank you, Mr. Chairman.

Mr. Verleger, 1 am happy you are here today for two reasons.
Number one, I think you have made the point that there are some
of us in Congress who are concerned about extremism in the envi-
ronmental regulations that have been imposed upon this country
and the damage it does to our economy. Some of us are trying to
put some balance back in those regulations and the enforcement of
those regulations and we are not trying to rape the environment.
We are simply trying to bring balance back into environmental reg-
ulation in this country.

So I appreciate your comments about how it is the EPA and envi-
ronmental regulations that are one of the major causes of the price
hikes in gasoline. I think we can point to other sectors of our econ-
omy where the same is true.

Number two, I appreciate your being here because you have
given me a wonderful idea to balance the budget. If taxes do not
affect the retail cost at the pump of gasoline, then I think we ought


23

it is really not true, I know I am not antigovernment. I know I am
not antitaxes. I just believe that government ought to be at the
right level, that taxes ought to be at a reasonable level to fund the
right level of government, and that is at the local level. 1 do not
think increasing taxes and increasing spending at the same time
is going to solve our problems.

e brought to the table in 1993 the solution of cut spending
first. That was almost a battle cry to my constituents. What do
your constituents say? Is this really about gas tax, the 4.3 cents?

ere are some that say this has no impact. Or is this a bigger
issue about bigger government and more taxes?

Mr. Royce. In terms of the impact to California, the impact is
$550 million a year as a result of this tax. But in terms of what
the thrust of this legislation is, we look at a Department of Energy
that has grown to some $16 billion a year in its costs. The cost of
repeal of this tax increase is about $5 billion a year. So what we
are saying is, let us look at a government agency where the Gen-
eral Accounting Office has already told us they cannot overcome
their management weaknesses, it has a lack of credibility, eroding
public support, a diminishing sense of purpose. Let us cut that
back. Let us do that instead of imposing the fees on the American

people.

Chairman ARCHER. The gentleman’s time has expired.

Mr. Kleczka.

Mr. Kueczka. Thank you, Mr. Chairman.

Mr. Chairman, it has been very instructive listening to all the
chatter this morning, but let me start by responding to my good
friend, Mr. Nussle, when he talks about senior citizens and the gas
tax. I checked my mail before coming down here and I have yet to
receive any correspondence from seniors in my district, and I have
a very large population. However, I have bags full of letters decry-
ing your Medicare cuts, so maybe you should check your mail to
see what the seniors in your district are writing about.

Mr. Nussle indicates that in 1993, there were some tax increases.
The bulk went to those who could afford to pay more. But like Paul
Harvey says, And now the rest of the story. That same bill in 1993
did provide over $250 million in tax cuts. We find that the annual
deficit when this President came to office was some $290 billion.
That has been reduced today to about $140 billion, a decrease of
almost one-half. So if you are going to start portraying what hap-
pened in 1993, I think it is incumbent to tell the whole story and
not just one-half of the story.

My good friend, Mr. English, indicated to Mr. Royce that he has
made a powerful argument, but I say to you, after looking at the
statistics as to where California is as far as a State gasoline tax
versus where the Federal Government is, I think, Mr. Royce, your
argument today should be made in Sacramento, California, implor-
ing Governor Wilson to join with you in helping your consumers
out by radically decreasing the gas tax in California. .

Again, let me state, the gas tax in California, the State tax in
California on gas is 30 cents a gallon versus 18 cents on the Fed-
eral level. So you are taking more—and you served in the State
Senate for 10 years—you are taking more in the State from your
consumers than the Federal levy is.


90

Before the

UNITED HOUSE OF REPRESENTATIVES
COMMITTEE ON WAYS AND MEANS.

STATEMENT OF THOMAS J. DONOHUE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMERICAN TRUCKING ASSOCIATION, INC.
ACCOMPANIED BY DONALD M. BOWMAN
CHAIRMAN, D.M. BOWMAN, INC.

May 8, 1996

‘The American Trucking Associations, Inc. (ATA) appreciates the opportunity to

testify on repealing the 4.3-cent general fund fuel tax and on fuel prices. We wish to make
three points:

The 4.3-cent general fund fuel tax should be repealed immediately for all fuels.
‘Taxes on highway fuel should go into the Highway Trust Fund and be used only for
highway purposes, as has historically been the case.

Repeal should be immediate and, preferably, permanent. If making repeal permanent
would slow down its enactment, we would favor a short-term repeal followed by
more comprehensive legislation that includes permanent repeal.

There are particular problems with both diesel and gasoline supply in California, The
extreme gasoline prices, which have drawn all of the media attention to date, appear
to result from the difficulty of forcing statewide use by June 1 of a fuel that cannot
be produced fast enough to meet the immediate demand; this might be addressed by a
phase-in or short delay of the “clean burning gasoline” mandate. However, diesel
fuel also costs consistently more in California than elsewhere even though the clean
air benefits are less certain. Congress should take a close look at whether special
California diese! makes sense in light of the high, permanent cost to the entire
economy. In addition, Congress should look at providing a relief mechanism when
California diesel prices exceed the national average by more than a certain margin.
The current 31 cent differential is harming truckers and their customers nationwide.

ATA REPRESENTS THE TRUCKING INDUSTRY

ATA is the national trade association representing trucking companies of all sizes,

industry segments and regions. More than 35,000 companies belong directly to ATA or to
our 51 state and 14 specialized national affiliates. These companies range in size from
individual owner-operators to carriers with thousands of trucks. Diverse as those businesses
are, they all use fuel. Thus, ATA has a strong interest in fuel taxation

TRUCKING PLAYS A VITAL ROLE IN THE ECONOMY

Nine million Americans make their living in the trucking business. Trucking is a

$360 billion industry, representing some 5% of gross domestic product. Shippers


44

Testimony of Philip K. Verleger, Jr.
Vice President
‘Charles River Associates

Before
Committee on Ways and Means
US. House of Representatives

May 8, 1996

‘The recent increase in gasoline prices has led to proposals to temporarily suspend the
43 cents per gallon tax on gasoline imposed as part of the 1993 Budget Reconciliation
Process. I believe that such an action would be a drastic mistake for the following reasons.

First, as I explained in a speech given to SIGMA, the Society of Independent Gasoline
Marketers of America, the increase in gasoline prices is the result of a number of
factors. Among the most important of these are (1) regulations promulgated by EPA
that limit the flexibility of the gasoline distribution system, (2) accidents at certain
critical refineries, and (3) the increase in gasoline consumption that has resulted from
higher speed limits and the purchase of less fuel-efficient cars. Suspension of the
‘gasoline tax will do nothing to correct these factors.

Second, the increase in gasoline prices is the consequence of a limited supply of
gasoline. Under these circumstances, the only two ways of bringing about a reduction
in the price of gasoline are to (1) increase supply or (2) reduce consumption. Since the
tax cut will affect neither supply nor demand, I conclude it will do nothing to affect
retail prices.

Third, the decrease in the gasoline tax will have an adverse affect on government
revenues and will cause an increase in the budget deficit. Further, I fear that a
temporary cut in the gasoline tax will increase concerns in financial markets that the
United States is losing its willingness to address the budget deficit. If this happens
long-term interest rates could increase and economic activity could be adversely
affected.

Fourth, I believe there is a real possibility that tightness in gasoline markets will prevent
the benefit of the cut in the tax ftom reaching the consumer until the fall If this
happens the tax cut will serve only to increase voter cynicism.

Fifth, I strongly applaud efforts by both the majority and the minority parties to remove
the federal government from micromanagement of the U.S. economy, We leamed
from a long and very difficult period in the seventies that government intervention in
the economy often had perverse effects. Most economists credit much of the steady
improvement in the economy since 1980 to the removal of government controls over
‘energy regulation and other sectors of the economy. The proposed cut in the gasoline
tax represents a retum to the interventionist past.

For these reasons - and a host of others - I strongly oppose the proposal to cut the gasoline tax
under the current circumstances,

* Affiliation shown for information purposes only. The opinions expressed in this paper are solely
those of the author and do not necessarily reflect the views of Charles River Associates.


85

Having said this, I do know that as a result of cost increases and
current spikes in fuel prices, I have talked with some carriers who
are anticipating a fuel surcharge in their pricing. I have also been
told by these carriers that if this tax is repealed, they would be
able to hold off on adding fuel surcharges. Repealing the 4.3-cent
tax at this time will assist the strapped inner-city bus industry and
that will help our passengers.

I thank you for the opportunity of presenting my views and look
forward to answering any questions I may.

[The prepared statement follows:]


62

Chairman ARCHER. But the price—I hope you will agree to this—
that the wholesale price of gasoline is quated every day on the com-
modities market and is traded as a market item.

Mr. VERLEGER. The wholesale price of one of 220 varieties of gas-
oline is traded on the New York Mercantile Exchange.

Chairman ARCHER. That is correct.

Mr. VERLEGER. Open interest in that contract is now 70,000 con-
tracts. It used to be about 160,000 or 180,000 contracts. I provided
testimony to the Federal court in New Jersey for the New York
Mercantile Exchange against the State of New Jersey’s attempt to
change the regulations because all the changes in regulations that
have been enacted, both by EPA and the States, have eliminated
liquidity in that market.

I will tell you, sir, that many companies, including most of the
importers I work with now, will not import to the United States be-
cause they do not trust the liquidity in that market as the price
quoted for the volume and the liquidity has dropped substantially.

Chairman ARCHER. I am aware of that, but the point I am trying
to make is that gasoline is a commodity. It has a market price, as
other commodities have market prices.

Mr. VERLEGER. It used to have more of a market price. Now
there are 220 varieties.

Chairman ARCHER. I understand that, and they all play off of
whatever the market is doing at any one particular time. They are
not all traded on the commodities market, but they all play off of
that. There are varieties of crude oil that are not bought and sold
on the commodities market. You might have heard of the commod-
ity of Texas light crude, though not true of all crude oils, they play
off of that price. It is a marketable commodity that has a market
price.

All of your testimony today is accurate in the sense that many
factors affect the market price of a product. But that market price,
which is determined on a give and take basis every day in the mar-
ketplace, is overlaid by the tax burden. The tax that is levied on
gasoline is a retail sales tax. It must be collected from the
consumer and added on top of whatever the commodity market
price of the product is. Do you disagree with that?

Mr. VERLEGER. Sir, in the first-——

Chairman ARCHER. No. Do you disagree with that?

Mr. VERLEGER. It is collected from the consumer. As you know
from teaching economics, when supply is absolutely inelastic, the
market clearing price is not affected.

hairman ARCHER. But you are getting off of the question. When
the supply is inelastic, it affects the basic market price of the prod-
uct. I agree completely with that. But levied on top of that is a tax
that must be collected from the consumer, and——

Mr. VERLEGER. Mr. Chairman, Bill Niskanen, who is a good
friend, and 1 know is an acquaintance of yours, and I both agree
on this one. If the supply is tight, during the period the supply is
tight, the consumer may not see the tax cut. That is the thrust of
my point in my testimony.

Chairman ARCHER. And you and I agree. That is the market
price of the product.

Mr. VERLEGER. Right.


86

STATEMENT OF HARRY W. BLUNT, JR.
PRESIDENT OF CONCORD COACH LINES, INC.
CONCORD, NEW HAMPSHIRE

ON THE
REPEAL OF THE 4.3 CENTS PER GALLON MOTOR FUELS TAX

BEFORE THE
COMMITTEE ON WAYS AND MEANS.
U.S. HOUSE OF REPRESENTATIVES

MAY 8, 1996
Mr. Chairman and Members of the Committee:

My name is Harry Blunt. I am the president of Concord Coach Lines in Concord,
New Hampshire. I also serve as the Vice Chairman of the American Bus Association.

‘My company provides scheduled bus service from 37 points in New Hampshire,
Maine and Massachusetts. We operate service to Logan Airport and to the new South
Station intermodal terminal in Boston.

‘As a small company that purchases over half a million gallons of diesel fuel each
year, we fully support repeal of the 4.3 cents a gallon fuel tax that goes into the general
fund. Our annual savings from this tax repeal may be small when compared with the
overall cost of the highway system, but it would have a significant impact on our
company and its ability to serve our customers.

Concord Coach purchased 546,503 gallons of diesel fuel last year, and we paid
$23,500 to the federal government because of the 4,3 cents fuel tax increase that went
into effect in 1993. These tax payments are direct operating costs to the company.

For the intercity bus industry as a whole, the 4.3 cents a gallon fuel tax adds to
the slender profit margins faced by many carriers. As set out in the testimony of the
American Bus Association at today’s hearing, many carriers providing scheduled service
have operating ratios above 100, meaning that their operating costs exceed their operating
revenue. This tax is simply an increment to those operating costs.

Bus carriers have already been hit in recent years with a number of increased
operating costs as a result of additional government regulations. 1 know that this
committee does not have jurisdiction over these areas, but it is important for you to keep
in mind what we in the transportation industry must contend with because of changing
federal regulatory policies. In the past few years, we have had to develop compliance
programs under the Clean Air Act, the Clean Water Act (including stormwater runoff and
underground storage tank regulations), the Americans with Disabilities Act, drug and
alcohol testing for bus drivers, and expanded OSHA regulations. Regardless of whether
or not we belive that these requirements are justifiable on policy grounds, these
compliance programs all add costs to our expense statements, The 4.3 cents a gallon tax
was added on top of these requirements two and one half years ago.

In addition, the price of fuel has gone up dramatically in the past few months. In
April 1995, the national average price for diesel fuel was $1.10 a gallon, By April 1996
the price had risen 20 cents to $1.30 a gallon. That 20 cents a gallon increase cost my
company $109,300 in one year, Our total annual ticket revenue is only about $6 million,
so the 20 cents a gallon price increase, along with the 4.3 cents a gallon fuel tax, amounts
to 2.2 percent of our total ticket revenues. In an industry with notoriously thin margins,
this has an exorbitant impact on profitability.


121

STATEMENT
on
PROPOSALS TO
REPEAL THE 4.3-CENTS-PER-GALLON
FUELS EXCISE TAX
for submission to the
HOUSE COMMITTEE ON WAYS AND MEANS
for the
U.S. Chamber of Commerce

by
William T Sinclaire
Senior Tax Counsel and Director of Tax Policy
May 8, 1996

The U.S, Chamber of Commerce — the world’s largest business federation, representing
215,000 business members, 3,000 state and local chambers of commerce, 1,200 trade and
professional associations and 76 American Chambers of Commerce abroad -- appreciates this
opportunity to express its views on proposals that would repeal the 4.3-cents-per-gallon General
Fund transportation motor fuels excise tax (the "1993 fuels tax"), enacted as part of the Omnibus
Budget Reconciliation Act of 1993 ("OBRA 93").

Majority Leader Robert Dole (R-KS) is proposing to repeal the 1993 fuels tax and
recently issued a joint statement with House Speaker Newt Gingrich (R-GA) calling for the
immediate repeal of the tax through the end of 1996, with permanent repeal to be considered in
the context of the 1997 fiscal-year federal budget. Senator Phil Gramm (R-TX) and
Representative Edward Royce (R-CA) have also introduced bills ~- 8. 1727 and H.R. 3375,
respectively — that would permanently repeal the 1993 fuels tax. The U.S. Chamber welcomes
these efforts and our members overwhelmingly support repeal of the 1993 fuels tax.

The Chamber opposed OBRA '93 because it increased the tax burden of both individuals
and businesses. Included in OBRA '93 was a provision that imposed a permanent 4.3-cents-per-
gallon excise tax on various motor fuels used in highway, rail, water and air transportation. We
assert now, as we did then, that additional fuels excise taxes slow economic growth, heighten
inflation and worsen unemployment.

Excise taxes, by nature, are regressive and assessed without regard to one's ability to pay.
The burden of the 1993 fuels tax has been falling disproportionately on smaller businesses,
individuals with fixed incomes and low-income workers. Increased fuels taxes, therefore, have
the most negative impact on those who can least afford them,

‘The 1993 fuels tax goes into the U.S, Treasury's general revenue account to finance the
federal government's overall spending, ‘There is no reasonable justification for specifically
targeting motor fuel purchasers for spending or deficit reduction purposes. General fund fuel
taxes unfairly penalize those individuals, businesses and industries that rely heavily on automobile,
bus, truck, ral, air or other modes of transportation,

Generally, transportation and other businesses that are obligated to pay higher motor fuels
taxes either pass the extra cost on to their customers in the form of higher prices, cut back
‘expenses -- such as labor and capital investment -- or incur lower net income. Conversely, a
decrease in motor fuel taxes would offset these negative developments.

Opponents of repeating the 4.3-cents-per-gallon fuels tax assert that there is no guarantee
that such a repeal would lead to lower gasoline and other motor fuel prices. They claim that the
oil industry would profit from the repeal of the tax since it would not reduce prices by a
corresponding amount. However, this argument fails to take into account a basic free-market
dynamic -- competition

A business that incurs a lower input cost could seek to capture more market share by
lowering its prices. Competitors would have to lower prices as well or risk loss of market share.


31

from Georgia has expressed it. In other words, if you can find a
way to make energy costs so high that no one can travel anywhere,
you can force them to sit in cities they do not otherwise want to
have to live in because their tax structure has become so incredibly
high that it has forced business out. It is tax versus tax, and in-
stead of considering lowering a tax, you figure out how to make one
so incredibly high that just a high tax looks attractive in compari-
son.

Mr. LEwis. Will the gentleman from Louisiana yield?

Mr. Hayes. No. I am just getting started. This is great.

Mr. Lewis. You are a candidate for the Senate, that is why.

Mr. Hayes. First of all, if we will go back and take a look, in
other words, it does not matter that over one-half of our oil prod-
ucts come from other countries. It does not matter they are im-
ported here, that we now depend upon countries in the Middle East
to give us products. It does not matter that our refining capacity
has diminished over the last decade. It does not matter that we
have environmental practices, many of which, John, I agree with
you, are very good. But it does not matter that they exist. We are
not willing to say they are going to have a cost impact. It does not
matter. All of this is the result of pure politics, if you want to be-
lieve the opponents.

You had a harsh winter that nobody could do politically. You
have refining capacity down that is not a political decision. You are
lucky you ducked the bullet of the BTU tax, and instead, what you
ought to do is what you can do.

ur solution in this Committee is to repeal a tax that should
have never been passed, a tax that was coupled with 56 to 58 bil-
lion dollars’ worth of giveaway programs to entice people to vote for
the tax that passed by a single vote. And finally, the only alter-
native we have from the executive branch is to take an oldtime res-
ervoir created in Elk Hills with about 30 minutes’ worth of gasoline
after it is produced and say, that, instead, is our alternative.

I know it is awfully hard to lower a tax, especially if you are in
the Democratic party. It is extremely difficult to lower one, because
then you start having to explain how it got raised there in the first
place.

If old Isaac Newton was on our next panel, he would be abso-
lutely astonished by some of the physics and economics he has
heard here today. What we have heard is when a tax goes up, it
is good. When it comes down, it does untold damage. Newton's
third law of motion would apply. It applies to politics, too. For
every action, there is an opposite and equal reaction. President
Clinton was right when he said he made a mistake raising this tax.
We should support him now and repeal it, because the opposite and
equal reaction is from an irate group of American citizens who
have been taxed to death.

Thanks, Mr. Chairman. I knew I would like serving here.

Chairman ARCHER. Mr. Matsui, do you still claim some time for
yourself?

Mr. Matsut. No.

Chairman ARCHER. Mr. Camp.

Mr. Camp. Thank you, Mr. Chairman.


7

Chairman ARCHER. Mr. Gibbons.

Mr. RANGEL. Parliamentary inquiry, Mr. Chairman.

Chairman ARCHER. Mr. Rangel.

Mr. RANGEL. In the interest of promoting bipartisanship on this
tax bill, on the witness list, did the Republican leadership provide
any witnesses that oppose the repeal of this tax? I cannot tell by
the names, but it would not——

Chairman ARCHER. I would say to the gentleman that that is not
a parliamentary inquiry.

r. RANGEL. This has to do with the hearing.

Chairman ARCHER. This does not relate to the procedure under
which this Committee operates.

Mr. RANGEL. I am terribly sorry. I apologize. I will withdraw the
question.

Chairman ARCHER. Mr. Gibbons.

Mr. GIBBONS. Mr. Chairman, I guess that we ought to be grateful
we only have Presidential elections once every 4 years in this coun-
try. I do not think the country could afford it if we had them more
often than that. Maybe we ought to have just a 1-year term limit
on Presidents to cut out some of the political pandering that is
going on here.

If anybody believes that the consumer will get any benefit out of
this gas tax reduction, I have to say that, based upon my experi-
ence, they are dreaming. The big seven oil companies and their co-
horts will find ways in which the consumer will never see a penny
of this gas tax. Believe me, I have dealt with them for 35 years and
I know them. They are good business people and they are doing
what all business people do and should do. They are always trying
to raise prices, and any excuse they get to raise prices, they will
raise prices. So the consumer is not going to see this money.

Second, the runup in gas prices is perfectly explainable by the
actions we have taken. We have had a cold winter, nothing any of
us could do anything about, but in cold winters, the refineries have
always run long on fuel oil and that means short on gasoline in the
summertime.

Gasoline prices for all of my life have always raised in the sum-
mertime because there is more driving and they respond to the
marketplace. .

In California, where Mr. Royce comes from, the State of Califor-
nia changed their clean air laws and required modification of their
refineries with a concomitant runup in cost that was going to hap-
pen to gasoline prices.

But it is an election year and we expect politicians to at least pay
attention to the voters’ wills and needs, but pander to them, my
gosh, this is the worst pandering I have seen in my 76 years at
election time.

If anybody thinks the infrastructure of this country is overbuilt,
they have not traveled on most of it. I know that this portion of
the gas tax does not, for political reasons, go into the infrastructure
trust fund, but it should, and at the appropriate time, I hope to
present an amendment to the legislation that will put this gasoline
tax and all future gasoline taxes in the infrastructure trust fund.

We, I guess, ought to get on with our business. I do not believe
the money is going to be passed through to the consumer. I think


46

‘The fourth critical factor is weather, Cold weather provided an extra stimulus to consumption
this winter, perhaps delaying the shift to maximum gasoline production, At the same time,
droughts and low grain stocks are boosting agricultural demand for fuels while limiting ethanol
availability.

‘The fifth factor is the industry's aggressive effort to boost return on investment. Through all
sectors of the economy, including the energy industry, CFOs have been sending out the order to
increase returns on assets or dispose of them One response has been to reduce working capital
invested in inventories.

‘The sixth factor has been the desire to avoid losses if and when oil prices collapse, Companies
do not want to be caught with high priced inventories if this happens.

‘The seventh factor isthe loss of fiquidity in energy commodity markets — particularly
gasoline, This has made it harder to hedge and has reduced the market's usefulness

‘The eighth and probably least important factor has been speculation. Over the last few years,
speculators have influenced oil price movements, and as of last Tuesday, speculators had clearly
contributed to the increase in gasoline prices. However, their role in the recent episodes has been
minimal. In fact, increased speculation might work in the interest of gasoline marketers.

‘Together, these eight factors have created a witch's brew of price volatility, high spot prices,
high retail prices at times, and an absolutely impossible business environment. While I fervently
wish this situation would go away, I am here today to tell you it won't. Iam also here to tell you
there is very litle the government can do in the short run to fix the problem unless it repeals
important environmental laws, which it won't. Thus my task here is to provide some advice on
‘how you might survive and profit in this more turbulent environment.

GOVERNMENT REGULATIONS

‘One of the primary causes of the price increase — in my view, pethaps the primary cause —
is, unfortunately, government regulation. Various laws enacted by ill-informed or uncaring
legislatures and enforced by equally ill-informed regulators have combined to reduce the oil
industry's ability to supply the market with products required by consumers. These regulations
and laws have also removed the flexibility of the petroleum distribution system, making large price
increases more likely

‘The actions that I believe have had the most pemicious effect are those related to
‘groundwater contamination and reformulated gasoline. Enforcement of the Clean Water Act has
almost made it a crime to operate a petroleum storage facility. As a consequence, every company
thas sought to limit its storage capacity and rely hopefully on the other guy. Shell capacity of
storage has been reduced, and ironically, companies have been complemented by
‘environmentalists for their actions.

And why not complement them? Afterall, storage facilities are unsightly, occasionally
pollute, and perform no obvious service that consumers or environmentalists can see. Thus the
closure of these facilities has been viewed as good.

However, the opponents of storage miss one important point — capacity is necessary to
‘smooth out unexpected blips in production or consumption. Inventories allow firms to meet
unexpected surges in consumption or cuts in production in an apparently seamless fashion. If
inventories are not available, we all know what happens. As we learned in first-year economics,
prices change (increase) until markets clear. If buyers panic, the increase can be quite dramatic.

Thus the government's admirable push for clean water combined with its arbitrary
implementation of the Clean Weter Act have contributed to the price increase by making it more
difficult, more costly, and more financially dangerous to own storage facilities.

The second regulatory contributor to the price increase has been the introduction of
reformulated gasoline. The RFG program represents another example of a well-intentioned
program that has harmed both consumers and refiners. 1 would like to say the program's impact
has been a surprise. However, I cannot. Indeed, I wrote about the implications of the program
almost two years ago and my forecast has proven to be all too true,


I’m excited that we are holding hearings and hopefally will soon vote on the immediate
repeal of the 4.3 cents-per-gallon gas tax hike through the end of 1996. This repeal would benefit
175 million Americans and will provide those who earn less than $10,000 a year with a 3.6 percent
tax cut. That's a good way to help our working families who are struggling to make ends meet.

Also, [hope that we can seize this opportunity to address the inequity the 1993 Clinton tax
hike placed on railroads, forcing the railroads to pay 1.25 cents-per-gallon more than other modes
of transportation. This additional tax increases the cost of all products shipped via rail, eventually
raising the cost for American consumers.

Working to reduce our nation’s tax burden is a long, long road. I'm glad we've come this
far. Tapplaud Chairman Archer and Senator Dole for their leadership on this issue and hope to
‘work with them as we once again keep our promise to give tax relief to hard-working Americans.

Thank you.


40

a modern mass transit system that has received massive construction and operating
subsidies -- at the expense of taxpayers across the country -- while those taxpayers outside
the area struggle to support their families and pay their taxes.

‘Opponents of reducing gasoline taxes have abjectly failed to make a rational
political or economic case for their position.

‘Those who warn that cutting the gasoline tax will increase the deficit overlook
current efforts by many in the House and Senate who support offsetting any projected
revenue loss with reductions in wasteful or low-priority spending. Decreasing the federal
rate by 4.3 cents would amount at most to a tiny fraction of one percent of all annual
federal outlays. Congress could also examine any of a myriad of additional program
reforms -- from power marketing subsidies to television spectrum giveaways -- that could
easily provide billions more for tax relief.

Historical evidence shows that unrestrained spending, not restrained taxes, fuel
deficits. Recent studies from the Joint Economic Committee have found that each dollar in
‘new taxes has triggered over one and one-half dollars in new spending

This lesson is not lost on the American people. They instinctively distrust
politicians who tell them that enacting -- or preserving -- tax hikes are good for families
because they reduce the deficit. A recent series of scientific polls of 1,000 registered or
likely voters by Grassroots Research, an independent polling firm found that 78% of those
surveyed believe that if taxes were raised for the stated purpose of reducing the deficit, the
money would actually be used to fund other government programs. These results suggest
that defending the current gas tax burden because of its impact on the deficit will not
resonate with most Americans.

Cutting the gas tax will not affect spending for federal highways under the
Highway Trust Fund. The 1993 gasoline tax increase was simply a revenue raising device,
and the revenues are not earmarked for highway construction or repair

The gasoline tax is not a true “user fee,” since its burdens bear little relationship to
the actual use of or damage to the nation’s infrastructure. The gas tax could be cut even
more if Congress were to reform expenditures from the federal Highway Trust Fund,
Another way to provide more substantial tax relief would be to move to a real user fee and
reduce general gasoline taxes accordingly. Mowt of the damage to the nation’s highways
‘comes from heavy trucks, and the motor fuels tax does not compensate for this damage.

Those who are concerned about the environmental impact of reducing gas taxes
should re-examine how the present flawed structure already serves as a roadblock to more
efficient environmental policy. The gas tax distorts the marketplace and hampers
incentives for automobile and truck users to minimize highway congestion and associated
environmental damage. Virtually every industry charges higher prices to avoid long waits
‘or overuse in peak periods by customers. For example, it normally costs more to make a
phone call during the day than it does at night. But the toll to cross the Lincoln tunnel in
New York City 1s the same 24 hours a day.

Cutting gas taxes could also increase our nation’s anemic economic growth rate
‘One analysis estimated that an average of 8,000 auto and related industry jobs alone would
be lost for every penny of higher gas taxes. Another study from the Institute for Research
‘on the Economics of Taxation found that a gas tax hike of 7.3 cents per gallon. originally
proposed as a substitute for the ill-fated BTU tax, could have cost between 200.000 and
225,000 jobs,

IRET concluded that a tax hike of that magnitude could have reduced GNP by
approximately $25 billion. As a result, a significant share -- as much as one-fourth -- of the
Proposed additional gas tax revenues would have been offset by lost revenues in income
and other taxes.

Although the final gas tax increase to which Congress agreed in 1993 was 4.3
cents, the basic economic lessons from studies of the 7.3-cent increase still apply.
Clearly, economic growth could have been more robust, and would be more robust in the
coming years, if the increase was repealed.


120

STATEMENT OF U.S. REP. NICK J. RAHALL
Before the Committee on Ways and Means

May 8, 196
Hearing On Motor Fuel Taxes

Mr. Chairman and Committee Members. Seizing upon the recent increase in gasoline
prices, some in the House and Senate are proposing to repeal that portion of the federal
motor fuel tax--4,3 cents per gallon—which is currently going to deficit reduction. I, on the
other hand, believe this is the perfect opportunity to direct those funds to where they should
have gone in the first place: the Highway Trust Fund,

To accomplish this goal, last week I introduced H.R. 3372, the "Gasoline Tax
Restitution Act of 1996" which would simply redirect to the Highway Trust Fund the 4.3
cents per gallon in federal motor fuel taxes currently going into the General Fund. Joining
me in introducing this bill was the ranking Democrat on this Committee, Sam Gibbons, and
the ranking Democrat on the Committee on Transportation and Infrastructure, Jim
‘Oberstar.

‘The fundamental reason why I believe this Committee should consider taking this
approach, rather than outright repealing the 4.3 cents per gallon tax, is because of the
pressing need to address the Nation's crumbling highway infrastructure.

According to the latest statistics available, in 1993 all levels of government provided
$39 billion in highway capital expenditures, with the federal government accounting for $17.1
billion of that amount. Yet, the cost to maintain the Nation's highways and bridges is
estimated at $54.8 billion, and to improve it at $74 billion, on an annualized basis.’ ‘This
means that we need $15.8 billion in additional revenues just to keep the overall system in its
resent condition and are $35 billion short of the amount of revenue required to make
necessary improvements.

Poll after poll shows that the American motorist, while not enthused about paying
taxes, nonetheless supports paying gasoline taxes if the money is dedicated to the Highway
‘Trust Fund for the purpose of maintaining and building new roads, highways and bridges.

1 would also submit that most motorists believe that it is a fundamental responsibility
of their government to maintain the highway system and that the majority of them believe
improvements should be made.

LR. 3372 offers this Congress an opportunity to at least begin making a dent in the
current shortfall in highway spending. Each penny in federal motor fuel taxes raises between
$1.1 and $1.3 billion in receipts for the Highway Trust Fund. This means that H.R. 3372
could provide between $4.73 and $5.59 billion in additional revenues to maintain and
improve our Nation's highway system.

Mr. Chairman, next year the Intermodal Surface Transportation Efficiency Act of
1991 (ISTEA) expires and Congress will be faced with the task of reauthorizing the federal-
aid highway program. It certainly makes sense for us to begin working today to ensure there
are enough revenues available to bolster our efforts to address America's crumbling highway
infrastructure. The legislation { am advancing is one way to do it, and I would note, do it
without raising new taxes on the public.

Thank you for your consideration of this matter.

11995 Status of the Nation's Surface Transportation System: Condition & Performance,
Report to Congress, U.S. Department of Transportation


19

some out-of-area spot and brought into the district, the community,
and these consumers’ homes. So we in Washington State get apples
from eastern Washington or wheat or corn and we get goods from
the central part of the United States and those are all trucked to
us or flown to us. Every single dollar that is spent as a result of
an increase in the fuels tax affects every consumer, and this would
be a great relief along that line.

I will also tell you that because I come from a district that con-
tains the highest number of Boeing workers in the Nation, for ex-
ample, there is a direct cost to jobs. The aviation industry on Octo-
ber 1 began paying the jet fuels tax of 4.3 cents per gallon. Every-
body who flies is now paying that, but because it is very tough and
there is very little elasticity right now in the aviation industry, this
is costing the aviation industry a great deal that they are having
to absorb on their own.

What that translates to for me and for the folks who work for
Boeing in my district is there is not as much money left to the
aviation industry to buy Boeing jets. My folks are the ones that
build those jets.

So I thank you, Mr. Royce, for bringing this issue to us, for giv-
ing us an item, a 4.3-cent gas tax cut that may be symbolic in the
sense that it is the tip of the iceberg, but I think it projects what
our team wants to do in terms of taxes generally, so that is much
to your credit.

Thank you, Mr. Chairman.

Mr. RANGEL. Mr. Chairman.

Chairman ARCHER. Mr. Rangel.

Mr. RANGEL. I do not know when I am going to go wrong here,
but I assume that there has been a dramatic increase in demand
of petroleum. This is a result of winter being over and people get-
ting ready to get their cars out of the garage and to make these
trips. Then politically, we see a dramatic increase in gasoline prices
at the pump. Politically, this disturbs everybody who is up for re-
election, whether they are Republican or Democrat. We have to do
something about it.

So while there is some question about how and why, at one time,
we saw that dramatic increase. There is no question in my mind
that the political solution appears to be to dramatically remove the
4-cent excise tax on gasoline.

I thought I heard you say, and this is basically my first question,
that if you reduce the tax on gasoline, then you reduce the price
of gasoline. Did you say that?

Mr. Royce. I think what I said was, and I was sharing an obser-
vation by a constituent of mine, he said, it is hard to figure out how
we are going to get back to gas at 50 cents a gallon if 47.4 cents
a gallon is what is paid in taxes to the government, and that was
his point.

Mr. RANGEL. Congressman, I need your thoughts because I can-
not bring my constituents’ thoughts here, because the Chair would
be embarrassed. But notwithstanding that, my President supports,
I think, what you are saying, and I want to support my President.
So my question to you is, Did you say that if you decrease the
taxes, reduce the taxes, that the consumers will see a decrease in
prices? That is all I am asking. Do you believe that?


14

Mr. Royce. Yes, sir.

Mr. GiBBONS. The transportation is a very important part of the
well-functioning economic system this country has or should have.
We cannot neglect it any further. We have neglected it far enough.
The Airway Trust Fund which finances the safety and everything
else on the airlines and the airports has been expired here for,
what, 4 months, and we have not lifted a finger to do anything
about that.

We are letting this country fall apart, all pandering so we can
tell the consumers the oil companies are gratuitously going to give
them this tax when we repeal it. That is just a bunch of wishful
thinking, Mr. Royce.

Thank you.

Mr. SHaw. Mr. Chairman.

Chairman ARCHER. Mr. Shaw.

Mr. SHAW. Mr. Chairman, I would like to remind my friend from
Florida that the argument he has just made is a very good argu-
ment and I wish he had made it or listened to it back in 1993. We
were making that exact argument back when this tax was put on.
This was breaking precedent with the past, that the taxes were all
going to the construction of infrastructure. It was a user tax, and
that is the way it should be.

What we are trying to do here is right a wrong. It was wrong
in 1993 to make this a revenue raiser for the general fund. We are
simply going to reverse that and go back to pre-1993 law, which
did precisely what the gentleman has been arguing.

I would hope you would join with us in supporting this and then,
at a later date, if it is necessary to go back and talk about raising
taxes for the construction of infrastructure, that we do that. But
this should not be a way of raising revenue for the Federal Govern-
ment. I totally agree with the gentleman’s argument and support
him on it.

However, what we are doing now is reversing a serious error that
originated in this Committee without one single vote from the Re-
publican side. We are coming back, now that we are in the major-
ity, and reversing that very, very bad decision that was made by
this Committee.

I yield back.

Chairman ARCHER. Mr. Cardin.

Mr. CarDIN. Thank you, Mr. Chairman.

Mr. Royce, do you know what the price of gasoline has risen to
in California? How high has it gone in the last couple months from
what it was per gallon?

Mr. Royce. It has gone up significantly.

Mr. CaRDIN. How much per gallon, do you have any idea?

Mr. Royce. At my local station, I would say it has gone up over
20 cents a gallon.

Mr. CaRDIN. Over 20 cents? You indicated that the 4-cent in-
crease cost California 8,000 jobs?

Mr. Royce. Yes, that is correct, the 4.3-cent increase did.

Mr. CaRDIN. So is it fair to say that in the last month or so, you
have found there has been another, what, four times that, 30,000
lost jobs because of the price increase?


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110

Mr. COLLINS. But it is still coming from the private sector into
the public pool?

Mr. Harper. It went into the trust fund, yes, sir.

Mr. CoL.ins. Thank you very much.

Thank you, Mr. Chairman.

Mr. Harper. If I may, the other penny and quarter, though,
stayed in the public pocket and did not go back into the railroad
infrastructure.

Chairman ARCHER. My compliments to all of you. I appreciate
your testimony. You have been very helpful to us as we pursue our
desired goals. You are excused.

I would like to enter into the record at this point written state-
ments from both the Concord Coalition Citizens’ Council and the
American Road and Transportation Builders Association.

(The prepared statements follow:]


69

Mr. LEvIN. But during these years of the 5-cent increase, one-
half of which was going to the General Treasury, is there any lit-
erature that came out from your organization on this subject?

Mr. FLEENOR. I do not believe so.

Mr. LEVIN. So this bill, the 1993 bill, did not set the precedent,
the 1990 bill did. That was passed on a bipartisan basis, and one
of the leaders in the effort was the Majority Leader of the U.S.
Senate, Mr. Dole.

I think the question is—and I think, Mr. Verleger, you have put
your finger on it—if we are going to do this, will it benefit the
consumer? Is there any assurance it is going to help the consumer
rather than, as you say, going to refiners and gasoline marketeers?
There has been no testimony today that gives any assurance that
that will happen, that it will go to the consumers, so we had better
work on that.

Chairman ARCHER. The gentleman’s time has expired.

Mr. Christensen.

Mr. CHRISTENSEN. Thank you, Mr. Chairman.

Mr. Verleger, I want to thank you for your testimony here today.
Even though we may not agree on the effects of a 4.3-cent repeal,
I do agree with you on a number of things you have said today.
I agree with you on the EPA. I agree with your quote, and if I am
quoting you correctly, “the EPA has criminalized the distribution
of gasoline.”

Mr. VERLEGER. You heard me precisely, sir.

Mr. CHRISTENSEN. If I am quoting you correctly, “The EPA
should be hit hard on the head.” This past year, many of us in the
Majority have taken a beating from environmental extremists say-
ing that we are “for dirty water and dirty air.” You mentioned two
things that I would like you to expand on and that is the Clean
Water Act and remediation, and then I would like to hear some
ideas you would have for this body as far as environmental regula-
tions that would make it better for the American people as far as
bringing some common sense back into the environmental regula-
tions.

Then last, I would like to know what would be your best guess
as a percent decrease if we could bring these regulations into line
with some common sense. What kind of percent decrease do you
think we might see in the market prices, if they were enacted?

Mr. VERLEGER. Sir, the point I have been making for 2 years on
EP4A’s regulations with respect to gasoline are that in implement-
ing the Clean Air Act amendments of 1990, the EPA mandated
that companies must essentially adopt entirely new procedures for
the management of inventories. What these do is reduce the flexi-
bility of turning tanks over. It is effectively like telling a grocery
store they have to keep one-half of their dairy shelves empty every
day, so it means you ought to double the number of shelves, the
shelf space you have, if you are going to carry the same amount
of milk.

At the same time, the Clean Water Act makes it very hard to
build tanks. Nobody wants to see tanks. The consumers do not like
tanks; they leak. Look at what happened in Fairfax. So, essentially,
companies have been closing tanks, cutting tanks down. That is the


24

Mr. Chairman, I think we all know what is going on around here
today. What you are attempting to do, and your colleagues, is to
jump start the Dole campaign. If, in fact, the consumers are going
to benefit while you do that, I will be supportive. But I have to join
my colleagues in voicing a lot of apprehension that the consumers
are not going to benefit at all from our action.

In fact, over the next few weeks, I will be watching very closely
select stations not only in my district but out here to see whether
or not even 1 cent went into the consumers’ pocket. I do not think
it is going to happen. I think what we are going to see a few
months from now is the tax changes from our action will go to the
pockets of the oil refineries and the consumers be damned. As I
look over the last 1¥2 years, the consumers have not benefited at
all by any of the Republican Congress action. All of a sudden, it
is 6 weeks before the campaign or the election and now consumers
have catapulted to the top of your list.

Let me ask, Mr. Royce, clearly, this has been identified as a 4-
cent Clinton gas tax. Let me ask you, sir, if you would join me in
increasing this tax decrease to the tune of 14 cents, the other 10-
cent reduction reflecting the Senator Dole gas tax increase. I think
if it is good for the goose, it should be good for the gander, and if
you are so concerned about consumers, | think a 14-cent reduction
in the gas tax is a lot more beneficial than 4 cents, so I will give
you the 4-cent Clinton tax if you join with me and help me to re-
peal the 10-cent Dole tax. I think that is a fair proposal. Would you
join me in that, sir?

Mr. Royce. What we are trying to do is get a bill through this
Committee——

Mr. KLECZKA. No, no, no. Just answer the question.

Mr. Royce [continuing]. And onto the President’s desk and
signed. We are discussing-—

Mr. KLECZ2KA. Reclaiming my time——

Mr. Royce. Could I just answer?

Mr. KLECzKA. If you are stating before the Committee that you
are proconsumer, you have to agree that a 14-cent cut in the gas
tax is a lot better than 4 cents, so let us join hands in a bipartisan
way and let us go and repeal the 4-cent Clinton tax and the 10-
cent Dole tax and I think we will have a deal then.

Thank you very much, Mr. Chairman.

Mr. Royce. Can I respond, Mr. Chairman? I would like the op-
portunity, if I could.

Mr. KLECZKA. Please do.

Mr. Royce. First of all, I am happy to support rolling back taxes.
There is a time when I get a little suspicious as to the agenda——

Mr. KLEczka. If a 4-cent Clinton tax is bad, then a——

Mr. Royce. I am going to try to respond, if I can.

Mr. CHRISTENSEN. Mr. Chairman, regular order.

Chairman ARCHER. The gentleman will suspend.

Mr. Royce. We have here a tax increase——

Chairman ARCHER. The gentleman will suspend.

Mr. KLEczKA. OK, Mr. Chairman.

Chairman ARCHER. I would like to give you the opportunity to re-
spond, but the time is under the control of the gentleman from


10

In February 1995 the GAO stated that the DOE “has a long his-
tory of management problems” and that the DOE “is not an effec-
tive or successful cabinet department.” The GAO cites the following
problems: Inability of the Department of Energy to overcome man-
agement weaknesses, lack of any credibility, eroding public sup-
port, and a diminishing sense of purpose.

For these reasons, Mr. Chairman, I am proposing the termi-
nation of unnecessary programs, the consolidation of programs du-
plicative of other departments or agencies, the transfer of programs
serving a valid purpose, and the privatization of programs that
could be better performed outside the government.

Thank you, Mr. Chairman.

{The prepared statement follows:]


29

Mr. Chairman, first of all, I would like to respond to my good
friend, Mr. Nussle. I notice he is not here right now, but you should
understand this tax was enacted into law in 1993 to help reduce
the Federal deficit. This effort reduced the deficit by more than
$500 billion. Republicans have passed into law no legislation to re-
duce our long-term national deficit. Now they want to pass a law
whose effect will be to increase our deficit by more than $30 billion.
Will the Republicans enact any laws that reduce the deficit or only
ones that increase it? That is the question facing this Committee
and all of us today.

Mr. Royce, let me ask you, sir, you know and I know that 1996,
this year is an election year and that is why we are holding this
hearing. I think my good friend and colleague from Wisconsin is
right. This is an attempt, a deliberate, open, blatant attempt to
start a stranded, delayed Dole campaign. If this was not an election
year, this Committee would have the common sense not to consider
a bill that will repeal a tax for 7 months. Do you really think in
your heart it is wise to repeal a tax for 7 months?

Mr. Royce. I came here in 1992 and I watched as this tax was
increased on the House floor. I did not vote for the increase. Nei-
ther did my colleagues on my side of the aisle. My point is that
when we repeal this tax, we should do it by what should have been
our focus then in 1993, cutting excessive government bureaucracies
and agencies that have grown at a horrendous, horrendous pace.
We look at the Department of Energy and the growth rate there
and the comments by the General Accounting Office, it is time to
pare back some of these agencies.

No, there is no effect if we offset this tax reduction on the Amer-
ican people with a reduction in government expenses for bloated
Federal bureaucracies like the Department of Energy. Then there
is no impact, and Congressman Lewis, that is the approach I want
to take in this legislation.

Mr. Lewis. Let me ask you, do you think it would make more
economic sense to repeal the tax until the first week of November,
until after the election is over?

Mr. Royce. Pardon.

Mr. Lewis. Do you think it would make more economic sense to
repeal the tax until the first week in November, just until the first
week in November, just until November 5?

Mr. Royce. No. It makes the most sense to cut the Department
of Energy now and reduce the taxes now. That is what makes the
most sense to me, and that is what I propose to do in this bill. I
do not want to delay this. I want to implement it and I want to
get some reductions over there in the Department of Energy.

Mr. Lewis. I know you are from the State of California. I come
from the State of Georgia. I have environmental concerns about re-
pealing the gas tax. Unfortunately, there are no environmental
groups here today to testify. My home district, the city of Atlanta,
is a nonattainment area for ozone and other pollutants under the
Clean Air Act.

Congestion and urban sprawl are two of the greatest problems
facing our city and our landscape today, and we are so dependent
on cars because gasoline is so cheap. The taxes we place on gaso-
line do not pay for the roads, the bridges that the government


98

Chairman ARCHER. Thank you, Mr. Donohue.
Mr. Bowman.

STATEMENT OF DONALD M. BOWMAN, CHAIRMAN AND CHIEF
EXECUTIVE OFFICER, D.M. BOWMAN, INC., WILLIAMSPORT,
MARYLAND; AND CHAIRMAN OF THE BOARD, AMERICAN
TRUCKING ASSOCIATIONS, INC.

Mr. Bowman. Good afternoon, Mr. Chairman and Members of
the Committee. I am Don Bowman, chairman and chief executive
officer of D.M. Bowman, Inc., of Williamsport, Maryland, and this
year’s chairman of the board of ATA, the American Trucking Asso-
ciations, Inc.

My company is a medium-sized truckload carrier. We run around
450 trucks and employ around 600 people. I am here today on be-
half of my company and the thousands of other truckers who are
experiencing serious problems with rising fuel costs.

The rise in fuel prices is causing major problems for my company
and many other ATA companies. For example, the supply of diesel
fuel has been interrupted for many of our member companies and
operating costs are going through the roof. If we do not get some
kind of relief soon, we will be unable to afford to buy the equip-
ment that we need to run our businesses and may even have to lay
off some employees.

Let me tell you what kind of effect repealing the 4.3-cent tax
would have at D.M. Bowman, Inc. We buy about 8 million gallons
of fuel annually. If Congress got rid of the 4.3-cent tax, my com-
pany would save $344,000 a year. With that money, I can create
eight more full-time jobs, paying a little over $40,000 a year, or I
could buy six brandnew tractors.

In summary, Mr. Chairman, there is very little any of us can do
about the market forces that are driving up the price of fuel, but
there is something we can do about the taxes on that fuel, particu-
larly taxes that do not build roads and bridges. Congress should
seize this opportunity to repeal this 4.3-cent tax and help protect
jobs and Promote economic growth.

I feel that repeal of this tax will mean a reduction of 4.3-cent-
per-gallon tax to my company and other end users of the product.
I think competition will ensure this.

I would like to thank you for the opportunity to testify today, and
I will be happy to answer any questions.

Chairman ARCHER. Thank you, Mr. Bowman.

Mr. Harper, you are our last witness. If you would identify your-
self for the record, you may proceed.

STATEMENT OF EDWIN L. HARPER, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, ASSOCIATION OF AMERICAN RAIL-
ROADS

Mr. Harper. Thank you, Mr. Chairman, Members of the Com-
mittee. | am Edwin L. Harper, president and chief executive officer
of AAR, the Association of American Railroads. I appreciate the op-
portunity to present the railroad industry’s perspective on current
proposals to eliminate portions of the fuel excise taxes.

It is appropriate for the Congress to reconsider fuel excise taxes.
The railroad fuel bill has gone up $480 million on an annualized


91

overwhelmingly choose to send goods by truck; trucking now accounts for 78% of the
nation’s freight bill.

As businesses at all stages of production trim inventories, they increasingly rely on
frequent and precisely timed truck deliveries to make sure they have enough raw materials,
parts and final goods to keep operating. This growing dependence on trucking instead of
storing materials has held down costs and made suppliers more nimble in meeting changing
demands from both domestic and foreign consumers.

At the same time, this dependence makes the financial and competitive condition of
the trucking industry all the more important to the entire economy. With a profit margin of
less than 1.5% in 1995, the trucking industry cannot afford taxes that are unique to
transportation industries.

I. FUEL Is A MAJOR EXPENSE FOR TRUCKING

Fuel costs account for anywhere from 4% to 20% of a trucking company’s operating
revenue, depending on the nature of the company’s vehicles, customers and length of haul.
The burden of fuel costs--and fuel taxes~falls on all carriers and their customers but it does
so very unevenly. Operations with especially heavy fuel needs include: long-haul trucking;
van lines; and activities that use fuel for nonhighway purposes, such as the motors used for
refrigerated trailers, dumping, trash pickup and compacting, and concrete and other mixing
and pumping operations.

Unfortunately, fuel costs have been soaring lately-even more in much of the nation
for diesel fuel than for the gasoline that has received most of the media attention. The
Energy Department's Energy Information Administration (EIA) surveys 250 truck stops
every week. Because shippers, carriers, government agencies and other rely on these
surveys to determine fuel price trends, EIA recently began, at ATA’s request, conducting
this survey three times a week, instead of weekly. The survey shows that the nationwide
average retail price for diesel fuel rose 15% in just 10 weeks, from $1.13 per gallon on
February 5 to $1.305 on April 15. The latest survey, done May 6, showed the national
average was still $1.292. (See Table 1 and Figure I.)

EIA also compiles five regional averages. Those averages reveal that prices rose
throughout February in the regions that use heating oil, namely the East and Gulf Coasts and
the Midwest. Although heating oil typically is a bit cheaper than diesel fuel, utilities,
factories and fuel oil distributors who may have had trouble getting enough heating oil (or
natural gas, in the case of dual-fuel facilities) probably started buying diesel fuel during the
coldest weather last winter, pushing up diesel prices in those regions. Now that winter has
finally ended, diesel prices in those regions have eased a bit. But in the Rocky Mountain
and West Coast regions, prices began to move up in late February or early March and are
still climbing. Total increases in those regions have been steeper and more sudden: a 26-
cent jump in just 7 weeks in the West Coast,

Commercial trucks will consume over 40 billion gallons of fuel this year - 24.3
billion of diesel fuel and 16.1 billion of gasoline. Commercial truck owners will contribute
$8.8 billion in fiscal 1996 in fuel taxes to the federal treasury, of which $1.7 billion will go
to the general fund and $7.1 billion to the Highway Trust Fund. These figures are
calculated at current federal tax rates of 24.3 cents per gallon for diesel fuel and 18.3 cents
for gasoline. In addition, commercial truck owners will pay another $3.1 billion in other
highway user taxes on new trucks, tires and highway use. All told, commercial trucks will
pay 44% of Highway Trust Fund taxes in fiscal 1996, in addition to $1.7 billion in general
fund fuel taxes. Additionally, commercial trucks will pay an additional $13.2 billion in
state taxes, not including property and/or weight distance taxes.


iu

Representative Ed Royce
Statement on Repealing the Fuel Tax
Before the House Committee on Ways and Means
May 8, 1996

Thank you. I would like to thank you Mr. Chairman for holding
this hearing on an issue of great importance to all Americans.
Whether or not one owns or operates a motor vehicle, each and every
consumer is affected by the skyrocketing gasoline prices that are
literally stopping traffic on our nation’s highway Last month,
the ‘price of a gallon of gasoline in my home state of California
reached $2.00 in some areas. This price is the result of a
market shortage of crude oil, new state regulations on formulation
of gasoline - and higher gasoline taxes. While we may not be
able to control all of these factors, we can provide consumers with
some immediate relief from the burdensome transportation taxes
levied on them by the Federal government. For this reason, last
week I introduced legislation, H.R. 3375, to repeal the 4.3 cente-
per-gallon federal gasoline tax imposed’ by the Administration in
1993.

At a time when we in Congress arc trying to put money back in the
pockets of American families and recharge the nation's economy,
gasoline excise taxes are at an all-time high. In the last ten
years the federal gasoline tax more than doubled from 9 cents to
18.4 cents per gallon. In California, the total gasoline tax has
increased to 47.4 cents per gallon. According the Tax Foundation,
this tax burden takes $422 out of the average American family’s
household budget per year -- $422. Mr. Chairman, that je a
significant amount of money to most families.

So, the question 4s, what can we in Congress do to provide some
relief to these families? And the answer is eimple -- we can
repeal some of these taxes. And that is what my legislation does.

I think it {s important, at this point, to clarify the nature of
this 4.3 cent tax, which is actually closer to 4.7 cents at the
pump because state sales tax is levied on top of this 4.3 increase.
It is important for the American people to understand that this tax
is NOT a user fee. Unlike the other taxes levied on gasoline and
diesel fuels, this 4.3 cent per gallon tax does not go into the
transportation trust fund to pay for federal highway repairs and
improvements. IT IS A TAX, pure and simple, that goes into the
general Treasury. The revenues from this tax go directly into the
general Treasury, just as income taxes do.

While 4.3 cents may not seem like a lot to those in the Department
of Energy, I think you will agree this proposal will provide real
relief to real people trying to make ends meet in a stagnant
California economy. This tax has a significant impact on the
national economy -- with my home state of California bearing the
brunt of this tax. The total cost of the Administration’s gas tax
increase to Californians is $550 million a year. ‘

While the Administration’s gas tax increase hits all Americans
hard, it is especially harmful to lower income families.
According to the Joint Economic Committee, the lowest » income
families in America pay four times as much of their disposable
income on gasoline than the highest twenty percent of income
earners. Further, this 4.3 cent tax 1s costing our economy jobs.
According to the ‘Tax Foundation, the ‘93 tax is responsible for
the loss of 8,000 jobs in California alone, and 69,000 jobs
nationwide. By repealing the 4.3 cents per gallon tax, my
legislation will help to restore these jobs and restore the economy
both in California and nationwide.

Recognizing that repealing the fuel tax will result in a loss of
revenue of approximately $28 billion over seven years, I propose to
offset this loss by reducing funds for the Department of Energy.
This legislation is based on the work of a House Task Force on
Energy, findings of the General Accounting Office, former Energy
Department officials, and industry representatives.


FIGURE 2: CALIFORNIA Vs, NATIONAL RACK & RETAIL DIESEL FUEL PRICES

California, National Rack Diesel
(price, $ per Gallon)

$ per Gallon
o so o 2
td Bg 8

075
o
Te-aprse rs preven Geay 36
1 2aApes6 20-Ap96 c6-May-26
—* Califomia ‘National Avg.
California, National Retail Diesel
(price, $ per Gallon)
16
1
155
5
§
os
8
2145
5
1
195
* 15-Apr-96 "22-Apr-96 "26-Apr-86 "02-May-96
17-Apr-96 (24-Apr-96 ‘30-Apr-96 06-May-96

== Calitom National Avg.

Source: ATA Statistics; data provided by Computer Petroleum Corporation PetroNet© software



102

~ for an even larger share of the burden. There is no justification for expanding fuel
taxes beyond their traditional, appropriate application as a user fee.

RAILROADS ARE SUBJECT TO A COMPETITIVE INEQUITY
UNDER THE CURRENT DEFICIT REDUCTION FUEL TAX SYSTEM

In addition to imposing the 4.3 cents-per-gallon deficit reduction fuel tax, OBRA
‘93 modified the original 1990 deficit reduction tax in a way that unfairly burdens the
railroads. This inequity must be remedied. OBRA ‘93 provided that as of October 1,
1995, the full 2.5 cents-per-gallon tax paid by the trucking industry and other highway
users would be redirected into the Highway Trust Fund instead of being dedicated to
deficit reduction, while half of the 2.5 cents-per-gallon deficit reduction diesel fuel tax
paid by the railroad industry would be retained, Thus, as a result of OBRA ‘93, railroads
now are the only payers of the original 1990 deficit reduction tax, at a rate of 1.25 cents~
per-gallon. Highway and waterway users and commercial airlines pay 4.3 cents-per-
gallon into the General Fund of the Treasury, while railroads pay 5.55 (4.3 plus 1.25)
cents-per-gallon. This inequity is shown on the following table.

Deficit Reduction Fuel Taxes

(CENTS PER GALLON)

F993 Cnysurs CURES
Fo 1990 Tax Vout

Hrereniyy 1/B9S

RAILROADS 2.5 43 -1.25 5.55
Moror Carriers 2.5 4.3 -2.50* 43
INLAND WATER 0 43 0 43
CARRIERS

COMMERCIAL 0 43 0 43
AIRLINES

‘PAYMENT TO DEFICIT REDUCTION ENDED: PAYMENT TO HiGHWay TRUST FUND BEGUN

This discrepancy in the deficit reduction fuel tax rate places the railroads at a
competitive disadvantage. It is clearly unjust to require railroads to pay 1.25 cents-per-
gallon more to reduce the deficit than their competitors. To remove this inequity, AAR
‘urges Congress to repeal the 1.25 cents-per-gallon differential in conjunction with the
repeal of the 4.3 cents-per-galion deficit reduction tax.

CONCLUSION
AAR applauds Congressional efforts to reduce the level of taxation imposed on

transportation by OBRA ‘93 through the fuel tax mechanism, In AAR’s view, however,
it is imperative that any initiative to reduce fuel taxes also include elimination of the


118

STATEMENT OF PROPANE VEHICLE COUNCIL

‘The Propane Vehicle Council hereby submits comments to the Committee on Ways and
Means for the record of the May 8, 1996 hearing to examine the impact of the 1993
‘gasoline tax increase,

‘The Propane Vehicle Council was established in early 1994 to advance propane’s future as 2
clean, safe and superior-performing alternative transportation fuel. The Council works to
remove legislative and regulatory barriers and to increase awareness of propane's
advantages as a transportation fuel among government officials, the auto industry and
consumers. It also undertekes projects to encourage the development, demonstration and
marketing of propane-related technologies and propane-powered vehicles.

Working together with the National Propane Gas Association, the PVC is composed of a
wide variety of stakeholders with a significant interest in the transportation fuel market for
propane, Council members include propane marketers, propane producers and pipeline
operators, equipment manufacturers and distributors, vehicle and engine manufacturers, and
associates.

The Propane Vehicle Council applauds your leadership in holding this hearing on the impact
of the 1993 gasoline excise tax increase. We support your efforts to repeal the 4.3 cent
per gallon gasoline tax increase as an important step in providing the American people with
needed tax relief. At a time when gasoline prices have risen to their highest levels in a
decade, this decrease in the federal gas tax will have a positive effect on the American
family budget. it should be enacted expeditiously.

‘As you move to repeal the 4.3 cent tax, the Propane Vehicle Council strongly supports your
consideration of a proposal to repeal the current tax penalty imposed on clean-burning,
domestically-produced fuels. Both Congress and the President recognize the important role
that alternative transportation fuels can play in reducing oil imports, improving air quality
and providing domestic jobs. Accordingly, U.S. government policies, including tax policy
should encourage the use of such fuels.

State and federal taxes are a primary impediment to the use of alternative fuels. Since
motor fuels are taxed on a gallonage basis, without regard to the energy content of the fuel,
these taxes are markedly different. In fact, federal taxes for alternative fuels, when
corrected to a common energy content, are in excess of the rate imposed on gasoline.
Propane is particularly disadvantaged; it is taxed at an effective rate of 24.9 cents per gallon
(when corrected to a common fuel energy content), compared with the current 18.3 cents
per gallon tax on gasoline.

Propane has for many years been the nation’s most widely used alternative fuel. It is
derived primarily from domestic natural gas. Unlike gasoline, propane is an environmentally-
friendly and clean-burning fuel, with the lowest greenhouse emissions of any currently
viable fuel. Propane is a sate, reliable energy source throughout the world and is used in
homes, farms and businesses, as well as for transportation. Of all the alternative
transportation fuels available, propane can most readily be used by fleets and motorists.


65

Mr. FLEENOR. No, it would not.

Mr. LAUGHLIN. You would not be, would you?

Mr. FLEENOR. I would not be surprised.

Mr. LAUGHLIN. I can very honestly represent that to you.

Mr. FLEENOR. But again, that is the idea behind a user fee. Peo-
ple are desiring safe roads, as you say, and the commonsense idea
behind the user fee is that they, in essence, pay for it through the
gasoline tax.

Mr. LAUGHLIN. I represent some people that just last week had
a schoolbus on Highway No. 59, that had almost the entire busload
of children go to the hospital because it is a two-lane road in a
rural part of our State, and I can tell you that they would not mind
having their tax doubled or tripled if they knew it was going to
make a four-lane safer road that we have in the metropolitan
areas.

Mr. FLEENOR. Right, but that is just our point. The problem we
find with the 4.3-cent tax is that it is not going to the Highway
Trust Fund. It is going to the general fund.

Mr. LAUGHLIN. Then you agree with me it is unfair that it is
going to deficit reduction and not to the benefit of those who are
paying it?

Mr. FLEENOR. Exactly. The original idea behind the trust fund
was to fund highway and transportation projects.

Mr. LAUGHLIN. Mr. Verleger, I want to shift to the EPA for 1
minute. As you talked about reduced capacity from our refineries,
is it not true that many of the refineries are, in fact, closing, abol-
ishing jobs in America and moving that refinery capacity offshore,
either to the Caribbean islands or even places out of the North
American continent because of EPA requirements?

Mr. VERLEGER. I know of three or four refineries that have
closed, sir. I know a lot more refineries that would close if it were
not for EPA laws as regards the Clean Water Act and remediation
required when you close those refineries. So it is a mixed story.

The big problem is, we are not getting enough investment in the
United States to make more gasoline. The National Petroleum
Council concluded the industry had to invest $10 billion just to
meet the standards mandated by the Clean Air Act amendments
of 1990, and most of that investment was nonproductive invest-
ment. It did not add to capacity and it did not add to long-term
jobs.

; Mr. LAUGHLIN. Mr. Verleger, would you agree that those who are
upset with the higher gasoline prices ought to do a little beating
up and leaning on the EPA to get a better balance between gaso-
line capacity, gasoline production, get more balance in EPA in
those areas, rather than beating up on the seven big oil companies?

Mr. VERLEGER. Congressman, I think they should do a lot of
beating up on EPA to get them to write rules that achieve in a
much more efficient fashion the goals for clean air rather than
beating up on the seven oil companies. I absolutely agree with you.

Mr. LAUGHLIN. And would that not create more jobs in America
that employ more people?

Mr. VERLEGER. I think it probably would, sir.

Mr. LAUGHLIN. Thank you, Mr. Chairman, and I thank all of you
for being here.


71

ergy-related areas, so that there is no evidence whatsoever that I
am aware of to reflect the fact that we lost jobs.

If that rationale were true, we have just seen in the last few
months an increase in gasoline prices that are four, five, six, seven
times the 4-cent increase, and if the same rationale were true, we
would be seeing right now a loss of a half a million jobs in our
economy as a result of the price increase per gallon of gasoline.

I do not quite understand that. I am going to give you a chance
to respond because I do not quite understand that argument and
I want to make sure how we would, in fact, see an economic growth
with the repeal of this tax.

Then the third point was that the consumer would get the tax
back, and we have no assurance that that will happen. In fact, we
have testimony that that will not happen during the summer
months because of the inelastic supplies and because the tax is im-
posed at the rack and by the time it gets to the retail dealer, the
retail dealer cannot control what price they put on the gallon of
gasoline, so the price is not passed through to the stationowner. I
am not picking on the stationowner, because you are controlled by
the price of the gasoline when it reaches you. You do not pay the
tax. The tax is already included in the product by the time it
reaches you.

And none of you have been able to tell this Committee of an ef-
fective way to make sure the consumer gets the 4.3-cent tax reduc-
tion. No one has come forward with an effective way to guarantee
that the tax rebate will actually go to the consumer.

I guess I am somewhat concerned about the premise for the tax
reduction, whether, in fact, we will be able to carry out our commit-
ment to the American people by either giving them back some of
their taxes or creating greater economic opportunity.

The last point I would make is that if the tradeoff is to reduce
the tax and increase the deficit, if that is what ends up happening
despite our best intentions to the contrary, if the end result is that
the deficit of the Nation goes up, the economic information I have
seen is that that would have more negative impact on our economy
than the positive impact of reducing the tax revenues. In that case,
we would be better off to have lower deficits than to deal with a
very modest reduction in the tax, particularly when the consumer
is not getting the benefits of it.

Mr. Fleenor, do you want to try to rehabilitate that and tell me
why we are going to lose these jobs or gain them back? Do you
have any documentation? First of all, do you have any documenta-
tion of 69,000 jobs lost?

Mr. HANcocK. Would the gentleman yield?

Mr. CarDIN. I would be glad to yield.

Mr. Hancock. I happen to be a small business man and I can
assure you that the gasoline tax and the income tax cost jobs.

Mr. CarDIN. That is not what I really asked. I asked if the in-
crease of the 4.3 cents in 1993—I want to try to focus in on that
specific tax increase—the projection was by the Tax Foundation
that we were going to lose 69,000 jobs as a result of that tax in-
crease, 69,100 and some. He had the exact number. My question
is, do we have any documentation of where those 69,000 jobs were
lost in our economy?


16

from the other on the same quality of gasoline. So I am not so sure
a 4-cent reduction is going to have any impact on consumers, and
I am concerned about whether this cut will really get to the
consumer, whether they will really feel it.

1 appreciate your willingness to work with us to make sure the
consumer gets the benefit of it, and I hope the Committee will fol-
low that suggestion and will make sure that any reduction that we
make in the gasoline tax, the consumer actually gets the benefits,
because I doubt it will happen.

Mr. ENGLISH. Mr. Chairman.

Chairman ARCHER. Mr. English.

Mr. ENGLISH. Thank you, Mr. Chairman.

Mr. Royce, you have made a very powerful argument here today
for the repeal and I want to thank you for it. I think you have been
one of the most consistent advocates of rolling back fuel taxes in
Congress.

Let me ask you, in your research, and specific to California,
which sectors of the economy have you found have been most sen-
sitive to fuel taxes, and is small business disproportionately af-
fected by these increases?

Mr. Royce. I think small business and I think, basically, the mo-
toring public is the most impacted. I have shared with you that
$422 is paid in taxes, gas taxes alone, by the average family, by
the average motorist. So when they fill up the tank, this additional
tax which we are trying to repeal, that alone is 75 cents every time
they fill up at the pump.

Mr. ENGLISH. In your study of it, particularly in your area, what
do you find are the distributional effects of these fuel taxes? Do
they fall disproportionately on lower income families, on middle-
class families?

Mr. Royce. I think the studies show that there is four times—
in terms of the budget, the household budget, it weighs very heav-
ily on lower income families, disproportionately. In terms of the im-
pact on low-income households, it is a 4-to-1 ratio.

Mrs. KENNELLY. Would the gentleman yield?

Mr. ENGLISH. Certainly.

Mrs. KENNELLY. Thank you, Phil.

We have two issues in front of us. One is the minimum wage and
the other one is the gas tax. In my readings on the minimum wage,
it shows your low-income worker who earns the minimum wage,
the gas tax savings will only be $17.

Mr. ENGLISH. I would be very interested. Reclaiming my time, I
know that that factor which my distinguished colleague from Con-
necticut referenced also varies considerably based on geography.

Mr. Royce, do you represent a suburban district, rural district, or
a mix of both?

Mr. Royce. The 39th District is suburban, Mr. English.

Mr. ENGLISH. Do you find that particularly people who have lim-
ited access to mass transit and people in rural areas and places
like California tend to pay the tax more than people who are of a
comparable income in an urban area?

Mr. Royce. Our particular area is a commuter area. Southern
California, as you know, has that reputation, and it is, indeed, true


99

basis so far this year. That cost will be passed along eventually to
everyone who uses electricity, who drives cars, or who eats.

The AAR urges the Congress to repeal the 1993 deficit reduction
fuel tax to which transportation modes are subject. All modes are
subjected to a 4.3-cent-per-gallon tax, while the railroads are
uniquely and inequitably subjected to a 5.5-cent-per-gallon deficit
reduction fuel tax.

In discussing fuel tax levels, it is important to distinguish two
distinct types of fuel taxes now in place. First, there are fuel taxes
which are essentially user charges imposed on nonrailroad modes
of transportation to pay for the improvement and maintenance of
public infrastructure and right-of-ways on which they depend.

Motor carriers pay fuel taxes to the Highway Trust Fund as a
user charge for federally financed construction, operation, and
maintenance of the publicly owned streets and highways through-
out America. Likewise, inland waterway carriers pay a similar fuel
tax to the Inland Waterways Trust Fund.

In contrast, however, to other modes, the railroads build, own,
and operate their own rights-of-way, and thus do not pay Federal
excise taxes or user fees, fuel or otherwise, for these purposes. The
freight railroad industry does not want or need a trust fund. In-
stead, each freight rail carrier makes its own investment decisions
and the industry pays significant property taxes on its privately
owned rights-of-way.

Second, other fuel taxes are paid by freight transporters solely
for deficit reduction. Prior to 1990, the only purpose of transpor-
tation fuel taxes was to finance nonrailroad transportation infra-
structure. The 1990 Budget Reconciliation Act extended the fuel
tax beyond its historical role as a user fee by introducing a 2.5-
cent-per-gallon deficit reduction tax on transportation fuels. This
tax was payable by highway users and railroads into the general
fund of the Treasury.

The 1993 Reconciliation Act imposed an additional 4.3-cent-per-

allon deficit reduction tax on all transport modes, albeit with a de-
ferred effective date for commercial airlines. This tax remains in
place and is the subject of today’s hearings.

The deficit reduction diesel fuel taxes imposed in 1990 and 1993
should be repealed. There is no justification for expanding fuel
taxes beyond their traditional and appropriate application as a
user fee. In addition, it is fundamentally unfair to single out the
transportation industry from other segments of the economy to pay
for deficit reduction. Moreover, it is grossly unfair to then single
out one mode of transportation, the railroads, for an even larger
share of the burden.

The 1993 Reconciliation Act provided that on October 1, 1995,
one-half of the 2.5-cent-per-gallon deficit reduction diesel fuel tax
paid by the railroad industry would be retained and extended,
while the tax paid by the trucking industry would be redirected
into the Highway Trust Fund rather than dedicated to deficit re-
duction. Thus, the railroads are now the only payers of the original
1990 deficit reduction tax, originally set to expire last year, at a
rate of 1.25 cents per gallon.

The chart, which you will see over here, illustrates the point and
makes clear the arithmetic. The AAR urges Congress to remove the


21

Mr. RANGEL. You are welcome—that we move forward and re-
duce the taxes and find some kind of way that we are embar-
rassed—not all, but those who support it—an increase in taxes at
the pump. We do not want that, and I hope that we can agree we
are going to mandate that if we reduce the taxes, they will reduce
the price.

Thank you, Mr. Chairman.

Chairman ARCHER. The gentleman’s time has expired.

Mrs. Kennelly for a parliamentary inquiry.

Mrs. KENNELLY. Mr. Chairman, it is more of a procedural ques-
tion. You mentioned to Mr. Matsui, I guess in your opening re-
marks, that we were not going to address a “pay for” for the repeal.

Chairman ARCHER. They are not expected to come out of this
Committee’s jurisdiction.

Mrs. KENNELLY. So may I ask the question, Mr. Chairman, to-
morrow, or if it is not tomorrow, the day that we mark up, Will
we be asked to vote for repeal without knowing how it was going
to be paid for?

Chairman ARCHER. The gentlelady can rest assured that the
Budget Act will be complied with and that whatever we do will be
revenue neutral. But the offset will not come from this Committee.

Mrs. KENNELLY. Mr. Chairman, I just would like to remind you,
twice during the organization meeting this year, I tried to have the
traditional way, as when we pass a tax reduction, we have to pay
for it in this Committee, and we did not get that rule passed. But
I just wonder how we can possibly vote for repeal, not knowing how
it is going to be paid for. I hope that does not happen.

Chairman ARCHER. I would simply say to the gentlelady that the
same argument was made, as you recall, last year when we got into
the Contract With America and assurances were given both to the
Members of this Committee and to the public at large that what-
ever we did would be paid for and it was paid for because the
Budget Act requires that.

Mrs. KENNELLY. Is there a possibility——

Chairman ARCHER. I would give the same assurances to the
gentlelady this year that were given last year, and the proof of it
is that it did occur, and before the bill is voted on the floor of the
House, it will be joined with a “pay for” so that the Budget Act will
be complied with.

Mrs. KENNELLY. Mr. Chairman, that is my concern. Will we be
asked to vote in Committee for the repeal before we know what the
“pay for” is?

Chairman ARCHER. Yes, because you would not have any oppor-
tunity to change the “pay for” in this Committee, irrespective of
what it is. It is not within the jurisdiction of this Committee, and
any effort to change it would be nongermane.

Mr. NussLe. Mr. Chairman.

Chairman ARCHER. Mr. Nussle.

Mrs. KENNELLY. It is like voting for a pig in the poke, Mr. Chair-

man.

Chairman ARCHER. Mr. Nussle.

Mr. NussLe. Thank you, Mr. Chairman.

It is just remarkable to listen to the defenders of big government
squirm and get all excited about this here today. In fact, listening


50

Here I need to point out that futures markets are delicate instruments. Participants use them
with care when they are new until they can be sure that the delivery mechanism works and that
futures prices converge to cash prices. Use drops every time there is a change in specifications.
For example, use of the gasoline contract dropped in the mid 80s during the switch from leaded to
unleaded gasoline, Use also dropped with the switch to RFG until the basis between the products.
could be established.

However, the uncertainty created by the governors of Pennsylvania and New Jersey has
caused a far greater decrease than might have been predicted. Further, use has not picked up
substantially.

‘When you think about it, you reach the conclusion that there is no reason for use to pick up.
‘There is still uncertainty regarding the continued participation in the RFG program by many
‘counties in the Northeast. Indeed, one or two entire states may drop out. Further, the EPA has
made it clear that regulations requiring prolonged reviews of withdrawal petitions will be waived.
‘Since the Republicans took over Congress, the EPA has been all too willing to take the politically
expedient action and let a state or county opt out on almost no notice. The agency's view seems
to be “so what ifa few oil companies lose money. It is not our problem.”

‘This uncertainty makes it much riskier to hedge and much more advantageous to hold low
stocks. This is precisely the action the industry has taken. Unfortunately, marketers and
‘consumers pay 8 heavy price for this

The uncertainty also makes it much riskier to be an independent refiner. And not surprisingly,
firms like Tosco have aggressively expanded into the retail business, in part to protect themselves
from the whims of government regulation,

SPECULATION

‘Speculators are also blamed by some observers for recent market events. The purchases by
these participants, it is claimed, have tended to raise the level of prices and boost price volatility,

In my view this conclusion is incorrect. Indeed, I would argue that the problem is there is too
little, not too much speculation

Let me begin by defining speculation. Speculation in commodity futures consists of the
‘purchase or sale of commodity futures or other instruments linked to commodities by buyers or
sellers. These buyers and sellers are not involved in the underlying physical business and for them,
the fluctuations in the commodity price do not correlate with fluctuations in the revenues received
from the firms’ actual business. In short, speculators buy or sell the commodity to earn a return
‘on the fluctuation of the commodity’s price.

Those who participate in speculation range from single individuals (the infamous doctors and
dentists) to hedge funds to pension funds. Today a large share of the money comes from pension
funds, who have concluded that the overall returns on the funds under management can be
increased or risk exposure reduced by investing in commodities, This group of speculators is
more appropriately abeled “commodity investors.”

Taken together, speculators tend to be buyers, not sellers of commodity futures. Examining
data from the Commodity Futures Trading Commission reveals that the speculative segment of
the market tends to be long, not short futures. This seems zo imply that speculators push up
prices,

Such a conclusion is incorrect because speculators must offset their positions, ultimately
selling out a long position or buying back a short position. Thus speculators (including,
commodity investors) will bid up forward prices when they buy and then depress cash prices when
they liquidate their positions, Altematively, speculators will push down forward prices when they
short the market and then push them up when they offset their positions. Since speculators on
average tend to be long, it appears that speculation pushes up forward prices.

By boosting forward prices, speculation boosts the economic incentive to manufacture
gasoline and to hold inventories. Thus speculation tends to help, not hurt, this segment of the
business


95

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33

sary programs.” I am assuming that you are talking about in the
Department of Energy?

Mr. Royce. Right.

Mr. HANCOCK. Could you give me a necessary program that they
have implemented?

Mr. Royce. Let me just share with you that over the last few
decades, approximately $90 billion has been poured into energy re-
search and development, $50 billion for nuclear energy, $19 billion
for coal, $10 billion for solar, $5 billion for oil, $3 billion for natural
gas, $2 billion for geothermal energy, $1 billion for hydropower,
and given the dramatic sums invested in energy R&D over the last
few decades, the government has little to show for its effort.

Although a small success here and there can obviously be dem-
onstrated, the commercial returns on those investments do not
even come close to matching the sums allocated. If Federal energy
R&D programs were operated by a single business, that business
would have gone bankrupt long ago.

My point is that as we look at the Department of Energy, we can
make reductions there and this bill targets 30 percent reductions.

Mr. HANCOCK. I notice that the estimate of what we are spending
on the Department of Energy is $16 billion a year. Is that correct?

Mr. Royce. Approximately.

Mr. HANCOCK. We are talking about a reduction in the tax of
roughly $5 billion?

Mr. Royce. That is correct.

Mr. HANCOCK. Under those circumstances, would you advocate
privatizing and turning these programs over on a competitive grant
basis just completely for the necessary energy research, the R&D,
and completely closing the Department of Energy?

Mr. Royce. What I have targeted are specific proposals that have
been made by former Secretaries of the Department, proposals
made by the General Accounting Office, and they total a sum of
about 30 percent of the agency budget.

So that has been my recommendation at this time, because there
is a connection between reducing the gas price, reducing the tax as-
sessment for the American public, and the growth of this Depart-
ment ostensibly created during the Carter administration to do
something about energy prices in this country. Now, as we look at
the cost to this country of close to $16 billion a year for this De-
partment, it is clear that we should look at downsizing and cutting
back some of those costs.

Mr. HANcock. Thank you. I think if we could move more in that
direction in a lot of departments in government, we would be a lot
better off.

Thank you, Mr. Chairman.

Chairman ARCHER. Are there any other Members who have not
inquired who would like to inquire?

Mr. Royce. Mr. Chairman, I would like to thank you and I would
like to thank the Members of the Committee.

Chairman ARCHER. Congressman Royce, thank you for taking the
time to appear before the Committee and to respond to questions.
We appreciate your input. You are excused.


17

that Californians drive more than people in New England. So yes,
it has a disproportionate effect on the west coast.

_Mr. ENGLISH. Thank you very much, Mr. Royce. Again, we appre-
ciate your coming before the Committee and sharing your obvious
expertise in this area. It has been most helpful to us.

Thank you, Mr. Chairman.

Chairman ARCHER. Mr. Levin.

Mr. Levin. Mr. Royce, welcome. You mentioned that the Federal
tax went up in the last decade from 9 cents, I think, to 18.3 cents?

Mr. Royce. That is correct.

Mr. LEvIN. Could you tell me why you stop at 4.3? Why do you
not then move to strike the rest of the Federal increase, if we are
really concerned about the consumer?

Mr. Royce. Congressman, this particular latest increase in the
gasoline tax does not go as a user fee. It goes into the general fund.
It in no way is used for highway maintenance or road repair or
anything connected with the use and the expenditure of that tax
by the motorist. So I think it logical that we begin with a tax re-
cently imposed, imposed by the last Congress and by this adminis-
tration, on the American people, and I think this is something that
is doable.

Mr. Levin. Let me ask you, what was the increase, the Federal
gas tax increase before the 1993 increase?

Mr. Royce. I was not here prior to that time as a Member of this
institution.

Mr. LEVIN. But you are an alleged expert on this. You do not
know when——

Mr. Royce. I have shared with you the increase.

Mr. LEvIN. No, how about before 1993? When was the previous
one, do you know, before 1993?

Mr. Royce. I would be happy to have a consultant with the Com-
mittee give us the year, if you would like.

Mr. Levin. To give us what?

Mr. Royce. The year. I would be happy to do that.

Mr. LeEvIN. I think it was 1990. There was a gas tax increase in
1990. Did all of that go to the trust fund?

Mr. Royce. As I have shared with you, Congressman, I was not
a Member of either this Committee or this House prior to that
point in time.

Mr. LeEvIN. Let me ask you this, then. If any of the 1990 gas tax
increase went for deficit reduction, would you favor its repeal?

Mr. Royce. I have looked at the figures for what has been raised,
Congressman, in terms of revenues from gasoline taxes and what
has been expended, and you are familiar, as well, I know, with the
debate about whether or not we have raised more or spent more
on transportation up until this latest increase in the gasoline tax,
if we have raised more or spent more in the trust fund. We hear
arguments from both sides.

Mr. LEVIN. Maybe my question was not clear. If any part of the

revious tax increase, gas tax increase, did not go into the trust
fund, would you favor its repeal, and would you add it to the 4.3
cents?

Mr. Royce. I think, Congressman, I put together a bill which is
logical, which reduces the bureaucracy of the Department of En-


61

Mr. VERLEGER. I want to make sure everybody understands
where the problem is.

Thank you.

Mrs. KENNELLY. I think that is the problem. Where the problem
is is the marketplace.

Chairman ARCHER. The gentlelady’s time has expired.

The Chair would like to follow up on some of the points that
have been made before recognizing another Member.

Mr. Sherbert, how many competitive brands of gasoline are sold
in your overall market area, that is, the Baltimore area?

Mr. SHERBERT. There are about nine companies.

Chairman ARCHER. Nine? We heard the statement earlier that
the seven big major companies would get together and fix the price
of gasoline. There are more than the seven big major companies
that are involved in the manufacture and the sale of brands of gas-
oline in this country, is that not correct?

Mr. SHERBERT. Oh, yes. There are a lot more brands than that.
I am just talking about in the State of Maryland and the District
of Columbia.

Chairman ARCHER. Mr. Verleger, you neglected to mention in
your testimony or comments to questions that we are not limited
to the supply of domestically produced gasoline at the pump in this
country. We do import a good bit of the finished product, do we
not?

Mr. VERLEGER. Chairman Archer, I think I said that EPA, in
promulgating its RFG regulations, made it significantly more dif-
ficult to import gasoline into the United States. I know I said that.

Indeed, I also said, just 1 minute ago in response to Congress-
woman Kennelly’s question, that we lost before the World Trade
Organization. This is something that one of the candidates for
President in your party was complaining about. We lost because
EPA’s regulations were ruled to treat foreign refiners more harshly
than domestic refiners. Had we not disadvantaged importers, more
imports would be available. The Venezuelans are attempting to
bring products here as are the Finns. But some of that capacity is
not yet available.

I would also say that the current experience repeats the experi-
ence in 1989, when the Exxon Valdez went aground and the refin-
eries in California lost crude. We had a very high price, and there
were hearings then, too. Gas flowed from St. Croix and from the
gulf to California and raised prices in Maryland and all across the
country. At that time, there was no EPA regulation that limited
imports, and so the problem was resolved much more easily.

Chairman ARCHER. I think you bring some very constructive tes-
timony to this Committee relative to how environmental regula-
tions can drive up the price of a product. Then you have to get into
the question of whether they are constructive, reasonably done, ob-
jective, and so forth, which then leads to another question. Regard-
less, they certainly will drive up the price of a product.

But we are not limited, even today, to our domestic refinery ca-
pacity as far as the available gasoline in the marketplace.

Mr. VERLEGER. That is absolutely correct.


114

Chairman ARCHER. The Committee will stand adjourned.
(Whereupon, at 2:02 p.m., the hearing was adjourned.]
[Submissions for the record follow:]


116

INDEPENDENT PETROLEUM ASSOCIATION OF AMERICA

1104 Surensen Seer, NW,
Wasineron, DC. 20086
202) e572
FAK (200 857-479

May 8, 1996 (OFFICE OF THE CHAIRMAN
WARD PETROLEDM CORP.
Lew 0. Waro PoROR tT
‘curt gre oD ‘pap, oxcaHoue 7702
camera (eo eam
AK a0 8 99 Evrceray

The Honorable Bill Archer, Chairman
‘Committee on Ways and Means

U. S. House of Representatives
Washington, D.C. 20515

RE: Ways and Means Hearing to Examine the Impact of the 1993 Tax Increase on
‘Transportation Fuels, May 8, 1996

Dear Mr. Chairman:

On behalf of the Independent Petroleum Association of America (IPAA), lam pleased to
submit the following statement for the record on your hearing today. IPAA represents
‘America’s 5,300 independent oil and natural gas producers/explorers.

Background. Gasoline prices are racing skyward all across America. In fact, they've
reached their highest point since America fought in the Persian Gulf War. And matters
‘could get worse if we don’t develop a U.S. energy policy now that encourages domestic
oil and natural gas production to drive our cars, heat our homes and fuel our economy.
‘Today's hearing concerns the repeal of the 4.5-cent excise tax on gasoline, but America’s
independent oil and natural gas producers would also like to offer some other solutions
for stabilizing America’s energy resource base that can be considered in the future.

‘When consumers go to the gas station and pay upwards of $1.40 per gallon, they are
understandably upset. The fact is the nation experienced one of its coldest winters ever,
which, in turn, caused Americans to use up oil supplies to keep warm. Now America is
faced with depleted fuel inventories. And as the law of supply and demand states, if
supplies are low and demand is high, prices will inevitably go up. That's simply beyond
anyone's control in the short term.

Now is the time to take action so that we can protect ourselves from these types of crises
inthe furure, We should increase domestic oil and gas production. We should stockpile
‘our Strategic Petroleum Reserve. But current policies are doing just the opposite.
Domestic production is at a 40-year low. And President Clinton and Congress have
agreed to continue to sell off the oil from our nation’s Strategic Petroleum Reserve

in order to balance the budget. We should be adding to that reserve, not taking away
from it.


4

Chairman ARCHER. The Committee will come to order as soon as
everyone has taken seats and we can discourage extraneous audi-
ble conversation. The Committee will begin its hearing.

Today’s hearing has been called to examine the impact of the
1993 tax increase on gasoline and transportation fuels. This $4.8
billion annual gas tax increase was passed as part of a bill that
raised taxes by $268 billion over 5 years. That tax bill, which
passed without a single Republican vote, was the largest tax in-
crease in the history of this country.

The issue of taxes, particularly the gas tax, is a very important
one for our Nation. Some believe that it was, and still is, important
to raise taxes to reduce the deficit. Others, myself included, believe
that when politicians raise taxes, they do not save money, they
spend it, and 1992 is a good example.

The year prior to the gas tax increase, the Federal Government
spent 3138 trillion. According to the President’s budget request,
the government this year will spend $1.57 trillion, an increase in
government spending of over $190 billion.

Let us take welfare as a specific example. In 1992 the Federal
Government spent $208 billion on welfare. In 1993 Congress raised
taxes. By 1995 welfare spending has increased to $262 billion, a
jump of $54 billion.

The more taxes go up, the more spending goes up, and that is
the heart of the problem. That is why we, as Republicans, believe
very strongly that it is better to cut spending to reduce the deficit.
We should not raise taxes, especially gas taxes, that hit lower and
middle-income Americans the most, adding to the middle-class
squeeze that we are experiencing.

I am pleased to note there is a growing bipartisan support for
this position. Speaking to a group of his campaign contributors in
my hometown last October, President Clinton said that he “raised
taxes too much.” I could not agree with the President more. He did
raise taxes too much and we can help him by beginning to roll back
those tax increases, starting with the gas tax. We would like to
make this a bipartisan effort, and the President’s wise words in
Houston may help show us the way.

Beyond the gas tax, we should continue to roll back the 1993 tax
increases by providing middle-income Americans with a $500 per
child tax credit; and we can create more high-paying jobs by reduc-
ing the tax rate on capital gains. I hope the President will join us
in this effort and make this bipartisan.

Today, we will hear testimony of several experts who will discuss
the impact of the gasoline tax increase. I look forward to hearing
their thoughts about this tax hike, and I now yield to the gen-
tleman from Florida for any statement that he might like to make.
Prior to yielding to him, without objection, all Members will have
the opportunity to insert any written statements in the record.

[The opening statement of Mr. Christensen follows:]


93

matters of nationwide concern.

Like the rest of the nation, California prices have been affected by high crude oil
costs, brought on in part by uncertainty about whether Iraq will soon begin selling oil again,
and by unexpectedly strong demand for gasoline. However, the California situation is made
worse by California Air Resources Board (CARB) requirements that refiners produce
specially formulated "low aromatics" diesel fuel and "clean burning" gasoline. "CARB
diesel" has been mandated since October 1993; "CARB gasoline” has been required in the
Los Angeles basin since March and will be mandatory statewide beginning June 1. ‘The
statewide mandate has produced a short-run surge in demand as every vendor tries to secure
supplies by that date from a very limited number of refiners. The inability of either diesel
or gasoline customers to purchase fuel produced out-of-state makes them extremely
vulnerable to price spikes when demand rises or supply is cut by production problems, such
as arefinery shutdown, Unfortunately, both a demand surge and a refinery explosion have
hit the California market this past month, leading to a predictable upsurge in prices.

The extreme gasoline prices, which have drawn all of the media attention to date, are
likely to subside once refinery capacity catches up to demand. This problem might be
addressed by a phase-in or short delay of the clean burning gasoline mandate. However,
diesel fuel also costs consistently more in California than elsewhere even though the clean
air benefits are less certain. Congress should take a close look at whether special California
diesel makes sense in light of the high, permanent cost to the entire economy. In addition,
Congress should look at providing a relief mechanism when California diesel prices exceed
the national average by more than a certain margin. The current 31 cent differential is
harming truckers and their customers nationwide.

VIL. CONCLUSION

‘The trucking industry has always been willing to pay its fair share of legitimate
highway user fees. However, it is inequitable and discriminatory to charge trucks
disproportionate amounts for nonhighway purposes that do not directly benefit highway
users. Therefore, ATA supports immediate, permanent repeal of the 4.3-cent general-fund
fuel tax.

If the tax cannot be permanently repealed right away, ATA would favor a short-term,
immediate repeal, quickly followed by permanent repeal.

Congress also should begin an immediate review of whether California-only fuel
mandates are unnecessarily restricting markets and driving up prices there, particularly for
diesel fuel, where the clean air benefits are much less likely to warrant the price penalty that
truckers and their customers nationwide suffer as a result of requiring a fuel sold only in
‘one state. In addition, Congress should consider whether it would be appropriate to provide
relief from the differential in diesel prices between California and the rest of the country
when that gap exceeds a certain level for more than a short period of time.


38

Yesterday, according to the Tax Foundation, was Tax Freedom
Day, the theoretical point at which we stop paying our taxes and
begin earning money for ourselves. Tax Freedom Day came a day
later this year, and it has been coming later in recent years. Our
citizens expect and deserve significant relief from this crushing tax
load. Working until May of each year is far too much for the aver-
age person. Much more needs to be done to provide tax relief, but
decreasing the gas tax would provide the average American with
an immediate, visible, and measurable reduction in the severity of
the tax bite.

Mr. Chairman and Members of the Committee, you have an op-
portunity to provide real tax relief to Americans squeezed by high
taxes by repealing this burdensome tax.

Thank you.

[The prepared statement follows:]


100

unique and inequitable differential by eliminating the full deficit
reduction tax on all modes.

Mr. Chairman, in conclusion, while waiting this morning, I was
reading the Joint Committee on Taxation’s report prepared on May
2 for the use of this Committee and the Finance Committee. In
that text, you will see a chart showing the trust fund, general
funds, and so forth. If this Committee and Congress go ahead and
eliminate the 4.3-cent-per-gallon tax, what you will see in this col-
umn is all zeroes except for the railroad industry. They will be the
only one the next time that this chart is created that will be paying
a deficit reduction fuel tax of 1.25 cents per gallon. Thus, we hope
that you will give careful consideration to making that a part of the
total package of eliminating the vestiges of the 1993 act.

Thank you.

[The prepared statement follows:]


4l

Athe beginning of this Congress, the Contract With America initially promised
taxpayers $354 billion in tax relief. That promise eventually shrank to $245 billion, only to
be vetoed in its entirety by President Clinton. It is sadly ironic that yesterday, taxpayers
were able to “celebrate” Tax Freedom Day, the theoretical point at which they stop

working to pay taxes and begin earning money for themselves. Tax Freedom Day came
cone day later this year.

Our citizens expect and deserve significant relief from this crushing tax load. We
hope that the rest of the 1990 and 1993 tax increases will be repealed. While much more
needs to be done, decreasing the gas tax would provide the average American with an
immediate, visible, and measurable reduction in the severity of the tax bite. Congress and
the President should not delay in providing this down payment on a less burdensome tax
system.

Mr. Chairman and members of the Committee, you have an opportunity to provide
real tax relief to Americans squeezed by high taxes. Repeal this burdensome tax.