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Economic and Energy Program (2)
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John O. Marsh Files (Ford Administration)
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The original documents are located in Box 13, folder "Economic and Energy Program (2)"
of the John Marsh Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 13 of the John Marsh Files at the Gerald R. Ford Presidential Library
23
PERMANENT TAX CUT
Q. Who will benefit most from the President's
proposed permanent tax reductions on incomes
of individuals?
A. While everyone will benefit under the President's
plan, low and middle-income taxpayers will benefit
more than those with higher incomes. 86% of the
total tax cut will go to persons with adjusted
gross incomes below $20,000 and 70% to those
with adjusted gross incomes below $15,000.
24
ENERGY CONSERVATION
Q. How do you know your measures are going to work?
A. We believe our proposal will work because people
will find it preferable to use less energy than to
pay more. Our figures show, and there is relative
agreement in the opinion of experts, that for each
10% increase in price, the demand for petroleum
drops by about 1 percent.
We believe that the American people are smart
enough to decide how to allocate their increased
expenses for energy, rather than have the Government
decide that for them. A quota system would place
that decision-making authority in the hands of the
Government, and would cause disparities in the market-
place. Our program, however, permits the consumer to
make the choice.
25
ENERGY CONSERVATION
Q. Why do we need to conserve energy when gasoline
is plentiful and we have the resources to make
this country energy independent in the next decade?
A. Crude oil, gasoline and other petroleum products
are readily available from foreign sources. The
problem is that petroleum imports will continue
to grow if we do not hold down demand. Increased
imports mean an outflow of dollars and jobs and
increased vulnerability to another embargo.
26
ENERGY INDEPENDENCE
Q. Why are there no short-term measures other than
Elk Hills and coal conversion to increase our
domestic supply?
A. There are a number of things we can do to increase
domestic energy production. The problem is that
all of them take time before the energy comes on
line. For example, it takes about 3-5 years to
open up a new oil field and ten years for a new
nuclear power plant.
The President's program calls for immediate action
on a number of measures to encourage domestic energy
production and those measures will contribute more
and more domestic energy in the years ahead.
27
THE NEED FOR IMMEDIATE ACTION
Q. Some critics have called for a gradually imposed
conservation program, including the phasing in of
oil and gas taxes over 2 years, the gradual lifting
of price controls, and no oil import fee. Wouldn't
this be more easily absorbed in a soft economy than
what you have proposed?
A. The President's energy program takes immediate and
direct steps to reduce our dependence on foreign
oil and to cut energy demand. While a more gradual
program would be easier for the economy to absorb,
it would postpone attainment of the goals set
forth by the President,
28
POSSIBILITY OF AN EMBARGO
Q. What happens if, after our efforts to save fuel by
paying higher prices and living with less energy,
the Arab countries turn around and impose another
embargo?
A. Though we do not expect another embargo, such an
event could occur. Hence, the President is request-
ing a set of standby authorities to deal with any
significant future energy emergency, including
authorities to implement standby conservation plans
and allocations of petroleum products. The President
is also proposing the establishment of a strategic
petroleum storage system for both civilian and
domestic use during an energy emergency.
29
OIL FEE PROCLAMATION
Q. Since the oil fees are only for 90 days, why not
just wait for Congress to act on the $2 fee?
A. The increased oil import fees have no expiration
date. They will remain in effect until the Congress
acts on the President's tax legislation. The reason
for the fees in this period is that this problem is
so serious that we must take action now to achieve
our goals. We have already waited too long.
30
OIL FEE PROCLAMATION
Q. The President has signed a Proclamation which
will increase oil prices in February. How are
people going to pay for these increased costs
when they don't get their rebate back until
the spring or summer?
A. The oil import fee imposed by the President's
order is a vital step in moving ahead on his
entire energy policy. The total increase of
$3 ($1 on February 1, $2 on March 1, and $3 on
April 1) will increase the cost of gasoline by
approximately 3 1/2 cents per gallon. The
price effects will not occur immediately, so
consumers will not be directly affected until
the oil is converted into products and sold
to consumers. That should occur sometime in
late spring. By the time the full effects of
the energy taxes begin to be felt by consumers,
the adjustments to the tax withholding rates
should be in place. If the Congress acts
rapidly on the President's economic and energy
programs, the economy will receive a stimulus
of several billion dollars beginning in the
spring and continuing through the year.
31
WINDFALL PROFITS TAX
Q: If the windfall profits tax phases out over time,
will it discourage current production or encourage
the holdback of production until the tax declines?
A: No. The rate at which the tax declines is slow
enough that producers would be better off to
produce and sell the oil, pay the tax and reinvest
the proceeds than to leave the oil in the ground.
32
WINDFALL PROFITS TAX
Q. How will the windfall profits tax work?
A. The windfall profits tax on crude oil imposes a
graduated excise tax (15% to 90%) on the excess of
the sales price per barrel of oil over an amount
called the adjusted base price, which is set at a
level intended to permit a normal, but not a windfall
profit. For each month the tax is effective, the
adjusted base price increases, thereby reducing the
amount subject to tax.
In summary, the tax is designed to capture a windfall
profit -- that is, one which results from a sudden
change in price caused by a circumstance which is
accidental and transitory. It is difficult to separate
ordinary market prices from prices which permit windfall
profits (or "excess" profits if one wishes to think
of it that way). We have made an estimate -- a
judgment -- as to the "long-term supply price, i.e.,
the minimum price to producers that will be sufficient
to induce and increase in our supplies of oil sufficient
to make us energy independent by 1985. Our judgment
is that the price required for this is around $7 to
$8 at today's price levels, assuming the continuation
of percentage depletion. The tax is designed to permit
producers to retain an amount equal to the long-term
supply price by the time additional oil supplies will
be coming on line three to five years from now.
To be certain that high cost oil producers never have
to pay more in taxes than they have in profits, the
tax will never be imposed on more than 75% of the
taxable income from the property that would exist if
there were no windfall profits tax.
33
PERCENTAGE DEPLETION ON OIL
Q. Why are you not at this time recommending the
elimination of percentage depletion on oil?
I thought you said percentage depletion should
go, if prices were decontrolled.
A. We have said all along that the best way to
capture the windfall profits which were accruing
to domestic oil producers was not through the
elimination of percentage depletion, but through
a windfall profits tax.
As a matter of tax reform --- which we hope the
Congress will take up just as soon as they can
following their consideration of these proposals --
we are willing to consider the subject. But we
shouldn't encumber this high priority program with
that issue.
34
COAL PROFITS
Q. Why, when you have proposed a windfall profits
tax on oil, have you neglected to propose a
tax on coal profits, especially since coal
prices have risen so rapidly in the last year?
A. It is unlikely that coal profits will increase
substantially. We believe that the increases
in coal prices over the past year, particularly
in spot markets, were largely related to the
drive to store up coal in anticipation of a
strike last November.
More important, however, is the fact that --
unlike oil -- approximately 80% of all coal is
under long-term contracts, so that prices and
profits cannot increase substantially.
FEA currently is conducting a study on coal
companies' profits and, if they are found to
be excessive, appropriate measures will be
taken.
35
RATIONING
Q. Recent opinion polls indicate that the American
people favor coupon rationing to increases in the
price of gasoline. Wouldn't rationing be just as
effective as price increases, and easier to legislate?
A. First of all, rationing is a one-sided coin --- con-
trolling gasoline consumption -- whereas our plan
will reduce consumption of all fuel products, and at
the same time stimulate an increase in supply. Second,
coupon rationing requires the establishment of a
cumbersome bureaucracy. It would take 4-6 months to
implement, require 15,000 - 25,000 full-time people
to run and an additional $2 billion in Federal costs.
Yet, given the fluid nature of our society, it is
probably limited to a useful life of no more than
two years. The longer a rationing program is in
place, the more ways people find to get around it.
Also, there would be gross inequities under rationing
that could not be resolved by any classification system
we have yet devised. For instance, a family of four
with 2 teenage children could have a ration of as much
as 36 gallons per week, whereas a family of four with
one adult driver and 2 infants would receive only 9
gallons a week at the coupon price.
Another victim of the rationing proposal is the GNP.
An allocation/rationing program would create a drop
of an estimated $13 billion in the GNP and would place
several hundred thousand more workers on unemployment.
We feel that the only reason rationing is even being
seriously considered is that the facts on it are not
fully known; anyone who studies it carefully will, we
think, understand the need to implement the President's
program.
36
RATIONING
Q. In effect, isn't your energy program price rationing?
If so, wouldn't it be more equitable to impose coupon
rationing, so that the poor or moderately poor aren't
proportionally overburdened by price increases?
A. In some ways the energy conservation program is
price rationing, but there are crucial differences:
first, the President's program focuses on all
petroleum products and natural gas -- not just
gasoline, which is the favorite target for most
who think rationing is the answer.
There is a second crucial difference between coupon
rationing and price increases. Under our program,
the consumer decides where his dollar is to be
spent. Under coupon rationing, that decision is
made by the Federal Government.
37
HORSEPOWER TAX
Q. Why not tax new automobiles on a horsepower basis,
to discourage purchase of "gas-guzzlers" and induce
people to buy smaller cars with smaller engines?
A. The Administration carefully considered a horsepower
tax, and concluded that the President's proposals to
increase the price of gasoline would have a more
immediate effect. We have made an agreement with the
Big 3 auto manufacturers to increase gasoline mileage
by 40%. It would meet energy conservation goals more
equitably than horsepower taxes.
Taxes on new cars based on horsepower would not affect
the majority of cars on the road until 1980, at the
earliest. Further, purchasers of large cars are the
least sensitive to price increases, and a resonable
tax would be unlikely to deter many purchases.
Also, prices of used cars would be driven up,
artificially penalizing low-income families.
38
AUTOMOBILE FUEL EFFICIENCY
Q. Following your announced agreement with the auto-
mobile manufacturers to improve fuel efficiency by
modifying pollution controls, the DOT, FEA and EPA
stated jointly that they believe the Clean Air Act
standards of 1977 could be met, and still achieve a
40% fuel economy increase by 1980. Why is there this
discrepancy within the Executive Branch, and who are
we to believe?
A. There really is no discrepancy. There are a number
of reports prepared in the Executive Branch which
indicate that the agencies concerned (EPA, DOT and
FEA) believe that, under the most optimistic circum-
stances, the current Clean Air Act standards for 1977
could be met and still achieve a 40% fuel economy in-
crease by 1980. However, attempting to meet those
standards would involve high dollar and energy costs.
Our most optimistic assessments of the technology
involved show that:
-- The initial cost of the cars would be between 5%
and 10% higher -- that is $200 and $400.
-- There would be a large fuel economy loss between
now and 1980 (when improved technology might be
available). For example, the fuel economy loss
in 1977 would be at least 10%.
-- Allowing the current Clean Air Act standards for
1977 to go into effect would produce very little
improvement in air quality because 1975 nation-
wide standards are already very low compared to
previous years.
This optimistic example illustrates the important point
that achieving any particular auto emission standards
involves costs -- in terms of initial automobile price
and in fuel economy. Less optimistic assessments of
the technology that will be available by 1980 indicate
that the Clean Air Act standards for 1977 would involve
even higher costs and fuel penalties.
The task at hand for the Nation is to decide on the best
balance between improved air quality in the cities that
have an auto-related pollution problem and the price
that will be paid nationwide to meet auto emission
standards.
FORD CLARARY
39
AUTOMOBILE FUEL ECONOMY
Q. Secretary Morton said the target for 1980 is
20 miles per gallon for all new cars. The three
major auto manufacturers have pledged only 18.7
miles per gallon. What really is the target?
A. The overall target for all 1980 model year cars sold
in the U.S. is 19.6 miles per gallon (which Secretary
Morton rounded to 20). This is a 40% increase over
the 14 miles per gallon average for all 1974 model
cars, domestic and foreign, sold in the U.S.
The agreement covers only the big three domestic
companies: Ford, GM and Chrysler. It calls for
an average of 18.7 miles per gallon by the 1980
model year. The 18.7 figure compares to 13 miles
per gallon for Big 3 cars in 1974. This is an
increase of 44%.
40
AIRLINE INDUSTRY
Q. Several airline executives have said that the
President's energy proposals will require a
20 to 30% increase in airlines fares. They also
indicate that several airlines may not be able
to survive financially because of the increased
cost of oil due to the taxes and tariffs. Does
the President plan to give the airlines special
dispensation?
A. We recognize that the airlines do have a legitimate
problem. Their fuel costs will go up very sub-
stantially. Several alternatives to help the
airlines cope with increased costs are being
explored and an effective plan will be developed.
We do not believe a fare increase of 20 to 30%
will be necessary. Even if other measures to help
solve the airlines' problems are not successful,
we believe that fare increases would not need to
exceed 10 to 15%.
The airlines consume over a billion gallons of
fuel every year. It is essential that they do
their part to reach our energy conservation goals.
41
NUCLEAR AND COAL - FIRED PLANTS
Q. More than 60% of nuclear and coal-fired power plants
have been delayed within the last year. How will the
President's program turn that around?
A. First, we have proposed a series of measures that
would improve the utilities' financial situation.
These include raising the investment tax credit
from 4 to 12% for all utilities for 1 year and
maintaining the 12% level for two additional years
for power plants other than those fired by oil and
gas. We have proposed legislation that would reform,
on a selective basis, State regulatory commission
practices and require fuel cost pass-throughs, as
well as a maximum of 5 months for rate or service
proceedings.
We have proposed facility siting legislation, so
that the States will have the capability to make
siting decisions for the whole State or region.
42
REGIONAL EFFECTS
Q.
What is the Administration's plan to help more
heavily affected areas -- particularly the
Northeastern States?
A.
Although the President's program will increase
import fees both on crude oil and products by
$1.00 on February 1, $2.00 on March 1, and $3.00
on April 1, imported products will receive a rebate
that will make the effective increase in the fee
approximately zero in February, 60¢ in March, and
$1.20 in April. The reason for the rebate is to
assure that users of imported products will continue
to share from the lower costs of price controlled
"old" domestic crude under the FEA's "Old Oil
Entitlements" program. This will reduce any
disproportionate impact of the fees on the
Northeastern States.
When the President's $2.00 excise/tariff package
on petroleum and the 37¢ tax on natural gas are
enacted, all regions of the country will con-
tribute equally to reductions in energy consumption.
43
NORTHEAST
Q. What is the Northeast dependency on oil products?
A. The Northeast depends on petroleum for approximately
85% of its energy requirements. The rest of the
country relies on petroleum for an average of only
46% of its total energy needs.
44
NORTHEAST
Q.
What are the long run and short run effects of the
President's program on the regional costs of energy?
A. The uneven regional effects will be dealt with through
the existing cost equalization program and lower pro-
duct import fees. In the longer term, regional effects
will be handled by bringing nationwide oil prices into
greater parity. These measures will mean that oil and
natural gas price increases should be about equal for
all sections of the country.
S.O.T.U. MESSAGE
EMBARGOED FOR RELEASE
UNTIL 1:00 P.M., EST
JANUARY 15, 1975
EMBARGOED FOR WIRE TRANSMISSION
UNTIL 10:00 A.M., EST
Office of the White House Press Secretary
THE WHITE HOUSE
TO THE CONGRESS OF THE UNITED STATES:
Twenty-six years ago, a freshman Congressman, a young
fellow, with lots of idealism who was out to change the
world, stood before Speaker Sam Rayburn in the well of
this House and solemnly swore to the same oath you took
yesterday. That is an unforgettable experience, and I
congratulate you all.
Two days later, that same freshman sat in the back row
as President Truman, all charged up by his single-handed
election victory, reported as the Constitution requires
on the State of the Union.
When the bipartisan applause stopped, President Truman
said:
"I am happy to report to this Eighty-first Congress
that the State of the Union is good. Our Nation is better
able than ever before to meet the needs of the American
people and to give them their fair chance in the pursuit
of happiness. It is foremost among the nations of the
world in the search for peace. "
Today, that freshman Member from Michigan stands where
Mr. Truman stood and I must say to you that the State of the
Union is not good.
Millions of Americans are out of work. Recession and
inflation are eroding the money of millions more. Prices
are too high and sales are too slow.
more
(OVER)
2
This year's Federal deficit will be about $30 billiem;
next year's probably $45 billion. The national debt will
rise to over $500 billion.
Our plant capacity and productivity are not increasing
fast enough. We depend on others for essential energy.
Some people question their government's ability to make
the hard decisions and stick with them. They expect Washington
politics as usual.
Yet, what President Truman said on January 5, 1949, is
even more true in 1975.
We are better able to meet the peoples' needs.
All Americans do have a fairer chance to pursue
happiness. Not only are we still the foremost nation in
pursuit of peace, but today's prospects of attaining it
are infinitely brighter.
There were 59,000,000 Americans employed at the start
of 1949. Now there are more than 85,000,000 Americans who
have jobs. In comparable dollars, the average income of
the American family has doubled during the past 26 years.
Now, I want to speak very bluntly. I've got bad news,
and I don't expect any applause. The American people want
action and it will take both the Congress and the President
to give them what they want. Progress and solutions can be
achieved. And they will be achieved.
My message today is not intended to address all the
complex needs of America. I will send separate messages
making specific recommendations for domestic legislation,
such as General Revenue Sharing and the extension of the
Voting Rights Act.
The moment has come to move in a new direction. We
can do this by fashioning a new partnership between the
Congress, the White House and the people we both represent.
Let us mobilize the most powerful and creative
industrial nation that ever existed on this earth to put
all our people to work. The emphasis of our economic
efforts must now shift from inflation to jobs.
To bolster business, and industry and to create new
jobs, I propose a one-year tax reduction of $16 billion.
Three-quarters would go to individuals and one-quarter to
promote business investment.
more
3
This cash rebate to individuals amounts to 12 percent
of 1974 tax payments -- a total cut of $12 billion, with a
maximum of $1,000 per return.
I call today on the Congress to act by April 1. If you
do, the Treasury can send the first check for half the rebate
in May and the second by September.
The other one-fourth of the cut, about $4 billion, will
go to businesses, including farms, to promote expansion and
create more jobs. The one-year reduction for businesses
would be in the form of a liberalized investment tax credit
increasing the rate to 12 percent for all businesses.
This tax cut does not include the more fundamental
reforms needed in our tax system. But it points us in the
right direction -- allowing us as taxpayers rather than the
Government to spend our pay.
Cutting taxes, now, is essential if we are to turn the
economy around. A tax cut offers the best hope of creating
more jobs. Unfortunately, it will increase the size of the
budget deficit. Therefore, it is more important than ever
that we take steps to control the growth of Federal
expenditures.
Part of our trouble is that we have been self-indulgent.
For decades, we have been voting ever-increasing levels of
Government benefits -- and now the bill has come due. We
have been adding so many new programs that the size and
growth of the Federal budget has taken on a life of its
own.
One characteristic of these programs is that their
cost increases automatically every year because the number
of people eligible for most of these benefits increases
every year. When these programs are enacted, there is no
dollar amount set. No one knows what they will cost. All
we know is that whatever they cost last year, they will cost
more next year.
It is a question of simple arithmetic. Unless we check
the excessive growth of Federal expenditures or impose on
ourselves matching increases in taxes, we will continue to
run huge inflationary deficits in the Federal budget.
If we project the current built-in momentum of Federal
spending through the next 15 years, Federal, State, and local
government expenditures could easily comprise half of our
gross national product. This compares with less than a third
in 1975.
more
(OVER)
4
I am now in the process of preparing the budget sub-
missions for fiscal year 1976. In that budget, I will
propose legislation to restrain the growth of a number of
existing programs. I have also concluded that no new
spending programs can be initiated this year, except those
for energy. Further, I will not hesitate to veto any new
spending programs adopted by the Congress.
As an additional step toward putting the Federal
government's house in order, I recommend a five percent
limit on Federal pay increases in 1975. In all Government
programs tied to the consumer price index - including
social security, civil service and military retirement
pay, and food stamps -- I also propose a one-year maximum
increase of 5 percent.
None of these recommended ceiling limitations, over
which the Congress has final authority, are easy to propose,
because in most cases they involve anticipated payments to
many deserving people. Nonetheless, it must be done. I
must emphasize that I am not asking you to eliminate,
reduce or freeze these payments. I am merely recommending
that we slow down the rate at which these payments increase
and these programs grow.
Only a reduction in the growth in spending can keep
Federal borrowing down and reduce the damage to the private
sector from high interest rates. Only a reduction in
spending can make it possible for the Federal Reserve
System to avoid an inflationary growth in the money supply
and thus restore balance to our economy. A major reduction
in the growth of Federal spending can help to dispel the
uncertainty that so many feel about our economy, and put
us on the way to curing our economic ills.
If we do not act to slow down the rate of increase in
Federal spending, the United States Treasury will be legally
obligated to spend more than $360 billion in Fiscal Year
1976 -- even if no new programs are enacted. These are
not matters of conjecture or prediction, but again of simple
arithmetic. The size of these numbers and their implications
for our everyday life and the health of our economic system
are shocking.
I submitted to the last Congress a list of budget
deferrals and recisions. There will be more cuts recom-
mended in the budget I will submit. Even so, the level
of outlays for fiscal year 1976 is still much too high.
Not only is it too high for this year but the decisions
we make now inevitably have a major and growing-impact on
expenditure levels in future years. This is a fundamental
issue we must jointly solve.
more
5
The economic disruption we and others are experiencing
stems in part from the fact that the world price of petroleum
has quadrupled in the last year. But we cannot put all of
the blame on the oil-exporting nations. We in the
United States are not blameless. Our growing dependence
upon foreign sources has been adding to our vulnerability
for years and we did nothing to prepare ourselves for an
event such as the embargo of 1973.
During the 1960s, this country had a surplus capacity
of crude oil, which we were able to make available to our
trading partners whenever there was a disruption of supply.
This surplus capacity enabled us to influence both supplies
and prices of crude oil throughout the world. Our excess
capacity neutralized any effort at establishing an effective
cartel, and thus the rest of the world was assured of
adequate supplies of oil at reasonable prices.
In the 1960s, our surplus capacity vanished and, as a
consequence, the latent power of the oil cartel could emerge
in full force. Europe and Japan, both heavily dependent on
imported oil, now struggle to keep their economies in
balance. Even the United States, which is far more self-
sufficient than most other industrial countries, has been
put under serious pressure.
I am proposing a program which will begin to restore
our country's surplus capacity in total energy. In this
way, we will be able to assure ourselves reliable and
adequate energy and help foster a new world energy stability
for other major consuming nations.
But this Nation and, in fact, the world must face the
prospect of energy difficulties between now and 1985. This
program will impose burdens on all of us with the aim of
reducing our consumption of energy and increasing pro-
duction. Great attention has been paid to considerations
of fairness and I can assure you that the burdens will not
fall more harshly on those less able to bear them.
I am recommending a plan to make us invulnerable to
cut-offs of foreign oil. It will require sacrifices.
But it will work.
I have set the following national energy goals to
assure that our future is as secure and productive as
our past:
-- First, we must reduce oil imports by 1 million
barrels per day by the end of this year and by
2 million barrels per day by the end of 1977.
more
(OVER)
6
-- Second, we must end vulnerability to economic
disruption by foreign suppliers by 1985.
-- Third, we must develop our energy technology
and resources so that the United States has
the ability to supply a significant share of
the energy needs of the Free World by the end
of this century.
To attain these objectives, we need immediate action
to cut imports. Unfortunately, in the short-term there
are only a limited number of actions which can increase
domestic supply. I will press for all of them.
I urge quick action on legislation to allow commercial
production at the Elk Hills, California, Naval Petroleum
Reserve. In order that we make greater use of domestic coal
resources, I am submitting amendments to the Energy Supply
and Environmental Coordination Act which will greatly
increase the number of power plants that can be promptly
converted to coal.
Voluntary conservation continues to be essential, but
tougher programs are also needed -- and needed now. There-
fore, I am using Presidential powers to raise the fee on
all imported crude oil and petroleum products. Crude oil
fee levels will be increased $1 per barrel on February 1,
by $2 per barrel on March 1 and by $3 per barrel on April 1.
I will take action to reduce undue hardship on any geo-
graphical region. The foregoing are interim administrative
actions. They will be rescinded when the necessary
legislation is enacted.
To that end, I am requesting the Congress to act within
90 includes: days on a more comprehensive energy tax program. It
-- Excise taxes and import fees totalling $2 per
barrel on product imports and on all crude oil.
--- Deregulation of new natural gas and enactment of
a natural gas excise tax.
-- Enactment of a windfall profits tax by April 1
to ensure that oil producers do not profit
unduly. At the same time I plan to take
Presidential initiative to decontrol the price
of domestic crude oil on April 1.
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7
The sooner Congress acts, the more effective the oil
conservation program will be and the quicker the Federal
revenues can be returned to our people.
I am prepared to use Presidential authority to limit
imports, as necessary, to assure the success of this program.
I want you to know that before deciding on my energy
conservation program, I considered rationing and higher
gasoline taxes as alternatives. Neither would achieve
the desired results and both would produce unacceptable
inequities.
A massive program must be initiated to increase energy
supply, cut demand and provide new standby emergency
programs to achieve the independence we want by 1985.
The largest part of increased oil production must come
from new frontier areas on the Outer Continental Shelf
and from the Naval Petroleum Reserve No. 4 in Alaska. It
is the intention of this Administration to rove ahead with
exploration, leasing and production on those frontier
areas of the Outer Continental Shelf where the environ-
mental risks are acceptable.
Use of our most abundant domestic resource --- coal --
is severely limited. We must strike a reasonable compromise
on environmental concerns with coal. I am submitting Clean
Air Act amendments which will allow greater coal use with-
out sacrificing our clean air goals.
I vetoed the strip mining legislation passed by the last
Congress. With appropriate changes, I will sign a revised
version into law.
I am proposing a number of actions to energize our
nuclear power program. I will submit legislation to
expedite nuclear licensing and the rapid selection of sites.
In recent months, utilities have cancelled or postponed
over 60 percent of planned nuclear expansion and 30 percent
of planned additions to non-nuclear capacity. Financing
problems for that industry are growing worse. I am there-
fore recommending that the one year investment tax credit
of 12 percent be extended an additional two years to
specifically speed the construction of power plants that
do not use natural gas or oil. I am also submitting
proposals for selective changes in State utility commission
regulations.
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8
To provide the critical stability for our domestic
energy production in the face of world price uncertainty,
I will request legislation to authorize and require tariffs,
import quotas or price floors to protect our energy prices
at levels which will achieve energy independence.
Increasing energy supplies is not enough. We must also
take additional steps to cut long-term consumption. I
therefore propose:
-- Legislation to make thermal efficiency standards
mandatory for all new buildings in the United States.
These standards would be set after appropriate
consultation with architects, builders and labor.
-- A new tax credit of up to $150 for those home
owners who install insulation equipment.
--- The establishment of an energy conservation
program to help low income families purchase
insulation supplies.
-- Legislation to modify and defer automotive
pollution standards for 5 years to enable us
to improve new automobile gas mileage 40 percent
by 1980.
These proposals and actions, cumulatively, can reduce
our dependence on foreign energy supplies to 3-5 million
barrels per day by 1985. To make the United States
invulnerable to foreign disruption, I propose standby
emergency legislation and a strategic storage program of
1 billion barrels of oil for domestic needs and 300 million
barrels for defense purposes.
I will ask for the funds needed for energy research
and development activities. I have established a goal of
1 million barrels of synthetic fuels and shale oil production
per it. day by 1985 together with an incentive program to achieve
I believe in America's capabilities. Within the next
ten years, my program envisions:
-- 200 major nuclear power plants,
-- 250 major new coal mines,
-- 150 major coal-fired power plants,
-- 30 major new oil refineries,
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9
--- 20 major new synthetic fuel plants,
- the drilling of many thousands of new oil wells,
-- the insulation of 18 million homes,
-- and construction of millions of new automobiles,
trucks and buses that use much less fuel.
We can do it. In another crisis -- the one in 1942 -
President Franklin D. Roosevelt said this country would
build 60,000 aircraft. By 1943, production had reached
125,000 airplanes annually.
If the Congress and the American people will work with
me to attain these targets, they will be achieved and
surpassed.
From adversity, let us seize opportunity. Revenues of
some $30 billion from higher energy taxes designed to
encourage conservation must be refunded to the American
people in a manner which corrects distortions in our tax
system wrought by inflation.
People have been pushed into higher tax brackets by
inflation with a consequent reduction in their actual
spending power. Business taxes are similarly distorted
because inflation exaggerates reported profits resulting
in excessive taxes.
Accordingly, I propose that future individual income
taxes be reduced by $16.5 billion. This will be done by
raising the low income allowance and reducing tax rates.
This continuing tax cut will primarily benefit lower and
middle income taxpayers.
For example, a typical family of four with a gross
income of $5,600 now pays $185 in Federal income taxes.
Under this tax cut plan, they would pay nothing. A family
of four with a gross income of $12,500 now pays $1,260 in
Federal taxes. My plan reduces that by $300. Families
grossing $20,000 would receive a reduction of $210.
Those with the very lowest incomes, who can least
afford higher costs, must also be compensated. I propose
a payment of $80 to every person 18 years of age and
older in that category.
State and local governments will receive $2 billion
in additional revenue sharing to offset their increased
energy costs.
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10
To offset inflationary distortions and to generate
more economic activity, the corporate tax rate will be
reduced from 48 percent to 42 percent.
Now, let me turn to the international dimension of the
present crisis. At no time in our peacetime history has
the state of the Nation depended more heavily on the state
of the world. And seldom if ever has the state of the
world depended more heavily on the state of our Nation.
The economic distress is global. We will not solve
it at home unless we help to remedy the profound economic
dislocation abroad. World trade and monentary structure
provides markets, energy, food and vital raw materials --
for all nations. This international system is now in
jeopardy.
This Nation can be proud of significant achievements
in recent years in solving problems and crises. The Berlin
Agreement, the SALT agreements, our new relationship with
China, the unprecedented efforts in the Middle East -- are
immensely encouraging. But the world is not free from
crisis. In a world of 150 nations, where nuclear technology
is proliferating and regional conflicts continue, inter-
national security cannot be taken for granted.
So let there be no mistake about it: international
cooperation is a vital fact of our lives today. This is
not a moment for the American people to turn inward.
More than ever before, our own well-being dépends on
America's determination and leadership in the world.
We are a great Nation -- spiritually, politically,
militarily, diplomatically and economically. America's
commitment to international security has sustained the
safety of allies and friends in many areas -- in the
Middle East, in Europe, in Asia. Our turning away would
unleash new instabilities and dangers around the globe
which would, in turn, threaten our own security.
At the end of World War II, we turned a similar
challenge into an historic achievement. An old order was
in disarray; political and economic institutions were
shattered. In that period, this Nation and its partners
built new institutions, new mechanisms of mutual support
and cooperation. Today, as then, we face an historic
opportunity. If we act, imaginatively and boldly, as we
acted then, this period will in retrospect be seen as one
of the great creative moments of our history.
The whole world is watching to see how we respond.
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11
A resurgent American economy would do more to restore
the confidence of the world in its own future than anything
else we can do. The program that this Congress will pass
can demonstrate to the world that we have started to put
our own house in order. It can show that this Nation is
able and willing to help other nations meet the common
challenge. It can demonstrate that the United States
will fulfill its responsibility as a leader among nations.
At stake is the future of the industrialized democracies,
which have perceived their destiny in common and sustained
it in common for 30 years.
The developing nations are also at a turning point.
The poorest nations see their hopes of feeding their hungry
and developing their societies shattered by the economic
crisis. The long-term economic future for the producers
of raw materials also depends on cooperative solutions.
Our relations with the Communist countries are a basic
factor of the world environment. We must seek to build a
long-term basis for coexistence. We will stand by our
principles and our interests; we will act firmly when
challenged. The kind of world we want depends on a broad
policy of creating mutual incentives for restraint and
for cooperation.
As we move forward to meet our global, challenges and
opportunities, we must have the tools to do the job.
Our military forces are strong and ready This
military strength deters aggression against our allies,
stabilizes our relations with former adversaries and
protects our homeland. Fully adequate conventional and
strategic forces cost many billions, but these dollars
are sound insurance for our safety and a more peaceful
world.
Military strength alone is not sufficient. Effective
diplomacy is also essential in preventing conflict and
building world understanding. The Vladivostok negotiations
with the Soviet Union represent a major step in moderating
strategic arms competition. My recent discussions with
leaders of the Atlantic Community, Japan and South Korea
have contributed to our meeting the common challenge.
But we have serious problems before us that require
cooperation between the President and the Congress. By
the Constitution and tradition, the execution of foreign
policy is the responsibility of the President.
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12
In recent years, under the stress of the Vietnam War,
legislative restrictions on the President's capability to
execute foreign and military decisions have proliferated.
As a member of the Congress, I opposed some and approved
others. As President, I welcome the advice and cooperation
of the House and Senate.
But, if our foreign policy is to be successful we
cannot rigidly restrict in legislation the ability of the
President to act. The conduct of negotiations is ill
suited to such limitations. For my part, I pledge this
Administration will act in the closest consultations with
the Congress as we face delicate situations and troubled
times throughout the globe.
When I became President only five months ago, I promised
the last Congress a policy of communication, conciliation,
compromise and cooperation. I renew that pledge to the new
members of this Congress.
To sum up:
America needs a new direction which I have sought to
chart here today -- a change of course which will:
-- put the unemployed back to work;
-- increase real income and production;
-- restrain the growth of government spending;
-- achieve energy independence; and
-- advance the cause of world understanding.
We have the ability. We have the know-how. In part-
nership with the American people, we will achieve these
objectives.
As our 200th anniversary approaches, we owe it to
ourselves, and to posterity, to rebuild our political and
economic strength. Let us make America, once again, and
for centuries more to come, what it has so long been -- a
stronghold and beacon-light of liberty for the world.
GERALD R. FORD
THE WHITE HOUSE,
January 15, 1975.
#
#
#
#
S.O.T.U. FACT SHEET
EMBARGOED FOR RELEASE
JANUARY 15, 1975
UNTIL 1:00 P.M., EST
EMBARGOED FOR WIRE TRANSMISSION
UNTIL 10:00 A.M., EST
Office of the White House Press Secretary
THE WHITE HOUSE
FACT SHEET
THE PRESIDENT'S STATE OF THE UNION MESSAGE
Page
THE PRESIDENT'S ECONOMIC AND TAX PROGRAM
Background
5
Current Situation and Near-term Outlook for the Economy
6
Major Elements of the President's Economic
and Tax Program
7
I. A $16 Billion Temporary Anti-Recession
Tax Reduction
7
II. Energy Conservation Taxes and Fees
7
III. Permanent Tax Reduction Made Possible by Energy
Taxes and Fees
7
IV. One Year Moratorium on New Federal
Spending Programs
8
V. Budget Reductions
8
Specific Proposals Announced by the President
9
I. Temporary, Anti-Recession Tax Cut
of $16 Billion
9
A. Tax Cut for Individuals of $12 Billion
9
B. Temporary Increase in Investment Tax
Credit of $4 Billion
10
II. Energy Conservation Taxes and Fees
12
A. Administrative Actions
12
1. Oil Import Fee
12
2. Crude Oil Price Decontrol
13
3. Control of Imports
13
B. Taxes Proposed to the Congress
14
1. Petroleum Excise Tax and Import Fee
14
2. Natural Gas Excise Tax
14
3. Windfall Profits Tax
15
III. Permanent Tax Reductions and Payments to
Nontaxpayers made possible by Energy Conservation
Taxes
17
A. Reductions for Individuals of $16.5 Billion.
17
B. Residential Conservation Tax Credit
of $.5 Billion
18
C. Payments to Nontaxpayers of $2 Billion
19
D. Tax Reductions for Corporations
of $6 Billion
20
more
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2
Page
IV. Moratorium on New Federal Spending Programs
20
V. Budget Reductions
20
Summary of the Budget Impact of the New Taxes,
Fees and Tax Cuts
23
Inflation Impact of the Taxes, Fees and Tax Cuts
26
Presidential Proposals of October 8, 1974, being
Resubmitted for Congressional Action
27
THE PRESIDENT'S ENERGY PROGRAM
Background
29
U.S. Energy Outlook -- Near-term, Mid-term
and Long-term
30
National Energy Policy Goals and Principles
Announced by the President
31
I. Near-term (1975-1977)
31
II. Mid-term (1975-1935)
31
III. Long-term (Beyond 1985)
32
IV. Principles
32
Actions Announced Today by the President
33
I. Actions Announced by the President to Meet
Near-term (1975-1977) Goals
33
A. Administrative Actions
33
1. Import Fee on Petroleum
33
2. Backup Import Control Program
34
3. Crude Oil Price Decontrol
34
4. Increase Public Education on
Energy Conservation
34
B. Legislative Proposals
34
1. Comprehensive Energy Tax and
Decontrol Program
34
a. Windfall Profits Tax on Crude Oil
34
b. Petroleum Excise Tax and Import Fee
34
C. New Natural Gas Deregulation
35
d. Natural Gas Excise Tax
35
2. Elk Hills Naval Petroleum Reserve
35
3. Conversion to the Use of Domestic Coal
35
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3
Page
II. Actions Announced by the President
to Meet Mid-term (1975-1985) Goals
36
A. Actions to Increase Domestic Energy Supply
36
1. Naval Petroleum Reserve Number 4
(Legislative)
36
2. Outer Continental Shelf (OCS)
Leasing (Administrative)
37
3. Reducing Domestic Energy Price
Uncertainty (Legislative)
37
4. Clean Air Act Amendments (Legislative)
37
5. Surface Mining (Legislative)
38
6. Coal Leasing (Administrative)
38
7. Electric Utilities
39
a. Uniform Investment Tax Credit
(Legislative)
39
b. Higher Investment Tax Credit
(Legislative)
39
c. Preferred Stock Dividend
Deductions (Legislative)
39
d. Mandated Reforms of State Utility
Commission Processes (Legislative)
39
e. Energy Resources Council Study
(Administrative)
39
8. Nuclear Power
40
a. Expedited Licensing and Siting
(Legislative)
40
b. 1976 Budget Increase for Safety,
Safeguards and Waste Management
(Legislative)
40
9. Energy Facilities Siting (Legislative)
40
B. Action to Conserve Energy
40
1. Auto Gasoline Mileage Increases
(Administrative)
40
2. Building Thermal Standards
(Legislative)
41
3. Residential Conservation Tax Credit
(Legislative)
41
4. Low-Income Energy Conservation
Program (Legislative)
42
5. Appliance Efficiency Standards
(Administrative)
42
6. Appliance and Auto Efficiency
Labelling Act (Legislative)
42
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4
Page
C.
Emergency Preparedness Actions
42
1. Strategic Petroleum Storage
(Legislative)
42
2. Standby and Planning Authorities
(Legislative)
43
a. Energy Conservation
43
b. Petroleum Allocation
43
C. End Use Rationing
43
d. Materials Allocation
43
e. Emergency Domestic Oil
Production Increase
43
f. Petroleum Inventory Regulation
43
III. Actions Announced by the President to Meet
Long-term (Beyond 1985) Goals
43
A. Synthetic Fuels Program (Administrative)
44
B. Energy Research and Development Program
44
C. Energy Research and Development
Administration (ERDA)
44
Table Summarizing Impacts of Near- and Mid-term
Actions on Petroleum Consumption and Imports
45
INTERNATIONAL ENERGY POLICY AND FINANCING ARRANGEMENTS
Background
46
U.S. Position
46
Actions Taken by Oil Consuming Nations
46
Other U.S. Actions and Proposals
47
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5
The President's Economic and Tax Program
The President's State of the Union Address outlined the
nation's current economic situation and outlook, and his
economic and tax program which are designed to wage a
simultaneous three-front campaign against recession, in-
flation and energy dependence.
BACKGROUND
The U.S. economy is faced with the closely linked problems
of inflation and recession. During 1974, the economy
experienced the highest rate of inflation since World
Jar II. Late in 1974, when a recession set in, unemploy-
ment rose sharply to over 7 percent, the highest level
in 13 years.
Accelerated inflation had its roots in the policies of the
past and several recent developments not subject to U.S.
control. Specifically:
---
Excessive Federal spending and lending for over
a decade and too much money and credit growth.
--
Unusually poor harvests contributed heavily to
world-wide food shortages and escalating food
prices.
-- World petroleum product prices increased
dramatically due to the Arab nations' embargo
on shipments of oil to the U.S., the quadru-
pling of the price of crude oil by the OPEC
nations, and their sharp reductions in
crude oil production to maintain higher prices.
Higher energy prices were passed through in
the prices of other products and services.
--
The decline in U.S. domestic production of oil
and natural gas that began in the 1960's also
contributed to higher energy prices.
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(OVER)
6
An economic boom occurred simultaneously in
the industrialized nations of the world.
There were two international devaluations of the
dollar.
Inflation contributed strongly to the forces of recession:
The real purchasing power of workers' paychecks
was reduced.
Inflation also reduced consumer confidence,
contributing to the most severe slump in
consumer purchasing since World War II.
Inflation forced interest rates to very high levels,
draining funds out of financial institutions that
supply most mortgage loans and thus sharply reducing
construction of homes.
Federal Government spending and lending programs,
accounting for
over half the funds raised in
capital markets, reduced the amount of money
available for capital investments needed to raise
productivity and increase living standards.
CURRENT SITUATION AND NEAR-TERM OUTLOOK
The economy is now in a full fledged recession and unemploy-
ment will rise further. Inflation continues at a rapid pace
and the need to take immediate steps to conserve energy will
further complicate the problem initially.
There are no instant cures. A careful and balanced policy
approach is required. It will take time to yield full results.
There is, however, no prospect of a long and deep economic
downturn on the scale of the 1930's.
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7
MAJOR ELEMENTS OF THE PRESIDENT'S ECONOMIC AND TAX PROGRAM
I.
A $16 Billion Temporary, Anti-Recession Tax
Reduction. This major reduction in taxes proposed
for individuals and businesses is designed to
restore consumer confidence and promote a recovery
of production and employment. The recession is
deeper and more widespread than expected earlier,
but the tax reduction -- together with the easing
of monetary conditions that has already taken
place -- will support a healthy economic recovery.
The tax reduction must be temporary to avoid
excessive stimulus resulting in a new price
explosion and congested capital markets. The
temporary nature of the reduction is consistent
with the long-term economic goals of achieving
and maintaining reasonable price stability and
raising the share of national output devoted to
saving and capital formation.
II. Energy Taxes and Fees. Energy excise taxes and
fees on petroleum and natural gas will reduce use of
these energy sources and reduce the nation's need
for importing expensive and insecure foreign oil.
Removal of price controls from domestic crude oil
(together with other energy actions) will encourage
domestic oil production. A windfall profits tax
would recover windfall profits resulting from
crude oil decontrol. Energy taxes and fees are
expected to raise $30 billion in new Federal
revenues on an annual basis.
III. Permanent Tax Reduction Made Possible By Energy
Taxes and Fees. The $30 billion annual revenue
from energy conservation excise taxes and fees
and the windfall profits tax on crude oil would
be returned to the economy through a major tax
cut, a cash payment for non-taxpayers, and direct
distribution to governmental units. Tax reductions
are designed to go mainly to low-and middle-income
taxpayers.
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8
IV. One Year Moratorium on New Federal Spending Programs.
The moratorium on new spending programs proposed by
the President will permit the Federal Government to
move toward long-term budget responsibility and to
avoid refueling inflation when the economy begins
rising again.
V.
Budget Reductions. The President will propose
significant spending reductions in his Fiscal
Year 1976 Budget. The reductions total more than
$17 billion, including $7.8 billion savings from
reductions proposed last year and $6.1 billion
from the 5 percent ceiling to be proposed on
Federal employee pay increases and on Federal
benefit programs that rise automatically with
the Consumer Price Index.
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9
SPECIFIC PROPOSALS ANNOUNCED BY THE PRESIDENT
I.
A Temporary, Anti-Recession Tax Cut of $16
Billion. The President proposed a temporary,
tax reduction of approximately $16 billion to
provide prompt stimulus to consumer spending
and business investment. The tax cut is
divided 75 percent to individuals and 25 percent
to corporations, which is approximately the
ratio that individual income taxes bear to
corporate income taxes. The cuts would be:
A.
A Tax Reduction for Individuals of $12 Billion.
1. Individuals will receive a cash refund
equal to 12 percent of their 1974 tax
liabilities, as reported on their 1974 tax
returns now being filed, up to a limit of
$1,000. Married couples filing separately
would receive a maximum refund of $500 each.
2. The temporary reduction will be a uniform
12 percent for all taxpayers up to about the
$41,000 income level where the $1,000 maximum
takes effect, and will then be a progres-
sively smaller percentage for taxpayers above
that level.
3. The refund will be paid in two equal
installments in 1975 with payments of the
first installment beginning in May and the
second in September.
4. The proposal does not affect in any way
the manner in which taxpayers complete and
file their 1974 tax returns. They will file
and pay their tax in accordance with existing
law, without regard to the tax reduction.
Later they will receive their refund checks
from the Internal Revenue Service. Because
no changes in deductions and other such items
are involved, the Internal Revenue Service
will be able to determine the amount of the
refund and mail the checks without requiring
further forms and computations from taxpayers.
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(OVER)
10
5. The effect of the tax refund can be
illustrated for a family of four as follows:
Adjusted
Present
Proposed
Percent
Gross Income
Tax
Refund
Saving
$ 5,000
$
98
$
12
-12.0%
7,000
402
48
-12.0%
10,000
867
104
--12.0%
12,500
1,261
151
-12.0%
15,000
1,699
204
-12.0%
20,000
2,660
319
-12.0%
40,000
7,958
955
-12.0%
50,000
11,465
1,000
as.)# 8.7%
60,000
15,460
1,000
-- 6.5%
100,000
33,340
1,000
-- 3.0%
200,000
85,620
1,000
--- 1.2%
Although the taxpayer will not figure his own
refund, it is a simple matter for him to
anticipate how much the Internal Revenue
Service will be sending him, by calculating
12 percent of his total tax liability for the
year (on Form 1040 for 1974, it is line 18,
page 1, and on Form 1040A, line 19).
B.
A Temporary Increase in Investment Tax Credit
for Business and Farmers of $4 billion.
1. There will be an increase for one year in
the investment tax credit to 12 percent for
all taxpayers, including utilities (which
presently have, in effect, a 4 percent credit).
Utilities will continue to receive a 12 percent
credit for two additional years for qualified
investment in electrical power plants other
than oil-or gas-fired facilities.
2. This increase in the credit will provide
benefits of $4 billion in 1975 to immediately
stimulate job-creating investment. (In view
of the need for speedy enactment and the
temporary nature of the increased credit,
this change does not include the basic re-
structuring of the credit as proposed on a
permanent basis in October, 1974.)
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11
3. With respect to utilities, it includes a
temporary increase in the amount of credit
which may be used to offset income tax.
Under current law, not more than 50 percent
of the income tax liability for the year may
be offset by the investment credit. Since
many utilities have credits they have been
unable to use because of this limitation,
under this proposal utilities will be permit-
ted to use the credit to offset up to 75 per-
cent of their tax liability for 1975,
70 percent for 1976, 65 percent for 1977, and
so on, until 1980, when they will in five
annual steps have returned to the 50 percent
limitation applicable to industry generally.
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(OVER)
12
4. The 12 percent credit will apply to
property placed in service during 1975 and
to property ordered during 1975 if placed
in service before the end of 1976. The
credit will also be available to the extent
of construction, reconstruction or erection
of property by or for a taxpayer during
1975, without regard to the date ultimately
placed in service. Similar rules will apply
to investment in electrical power plants other
than oil-or gas-fired facilities, for which
the 12 percent credit will continue through
1977.
II. Energy Conservation Taxes and Fees. Energy taxes
and fees, in conjunction with domestic crude oil
price decontrol and the proposed windfall profits
tax, would raise about $30 billion on an annual
basis. The fees and taxes and related actions
(discussed more fully in Part Two of this Fact
Sheet) include:
A.
Administrative Actions.
1. Import Fee -- The President is acting
immediately within existing authorities to
increase import fees on crude oil and
petroleum products. These new import fees
will be modified upon passage of the
President's legislative package.
(a) Import fees on crude oil and petroleum
products will be increased by $1 effective
February 1, 1975; an additional $1 effective
March 1; and another $1 effective April 1,
for a total increase of $3.00 per barrel.
Currently existing fees will also remain
in effect.
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13
(b) FEA's "Old Oil Entitlements" program will
be utilized to spread price increases on crude
among all refiners, and to lessen dispropor-
tionate regional effects, such as New England,
or in any specific industries or areas of
human need where oil is essential.
(c) As of February 1975, product imports
will cease to be covered by FEA's "Old Oil
Entitlements" program. In order to overcome
any severe regional impacts that could be
caused by large fees in import dependent
areas, imported products will receive a fee
rebate corresponding to the benefit which
would have been obtained under that program.
The rebate should be approximately $1.00 in
February, $1.40 in March, and $1.80 per
barrel thereafter.
(d) The import fee program will reduce
imports by an estimated 500,000 barrels
per day and generate about $400 million
per month in revenues by April.
2. Crude Oil Price Decontrol -- To stimulate
domestic production and further cut demand,
steps will be taken to remove price controls
on domestic crude oil by April 1, 1975,
subject to congressional disapproval as
provided by §4(g) of the Emergency Petroleum
Allocation Act of 1973.
3. Control of Imports -- The energy conservation
measures to be imposed administratively out-
lined above, the energy conservation taxes
outlined below and other energy conservation
measures covered in Part Two below, will be
supplemented by the use of Presidential power
to limit oil imports as necessary to fully
achieve the President's goals of reducing
foreign oil imports by one million barrels
a day by the end of 1975 and by two million
barrels before the end of 1977.
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(OVER)
14
B.
Taxes Proposed to the Congress. The President
asked the Congress to pass within 90 days a
comprehensive energy conservation tax program
which will raise an estimated $30 billion in
revenues on an annual basis. The taxes proposed
are:
1. Petroleum Excise Tax and Import Fee -- An
excise tax on all domestic crude oil of $2 per
barrel and a fee on imported crude oil and
product imports of $2 per barrel.
2. Natural Gas Excise Tax -- An excise tax
on natural gas of 37c per thousand cubic feet
(mcf), the equivalent on a Btu basis to the
$2 per barrel petroleum excise tax and import
fee.
more
15
3. Windfall Profits Tax -- To ensure that
the end of controls on crude oil prices
does not result in one sector of the
economy benefitting unfairly at the expense
of other sectors, a windfall profits tax
will be levied on the profits realized by
producers of domestic oil. This tax is
intended to recapture excessive profits
which would otherwise be realized by
producers as a result of the rise in
international oil prices. This tax does
not itself cause price increases, but simply
recaptures the profits from price increases
otherwise induced. It will, together with
the income tax on such profits, produce
revenues of approximately $12 billion.
In aggregate, the windfall profits tax is
sufficient to absorb all the profits that
would otherwise flow from decontrolling oil
prices, plus an additional $3 billion. More
specifically the tax will operate as follows:
(a) A windfall profits tax at rates graduated
from 15 percent to 90 percent will be imposed
on that portion of the price per barrel that
exceeds the producer's adjusted base price
and therefore represents a windfall profit.
The initial "adjusted base price" will be
the producer's ceiling price per barrel on
December 1, 1973 plus 95 cents to adjust for
subsequent increased costs and higher price
levels generally. Each month the bases will
be adjusted upward on a specified schedule,
which will gradually raise the adjusted base
price to reflect long-run supply conditions
and provide the incentive for new investment
in petroleum exploration. Percentage deple-
tion will not be allowed on the windfall
profits tax liability.
(b) The windfall profits tax rates will be
applied to prices per barrel in excess of
applicable adjusted base prices as follows:
more
(OVER)
16
Portion of price per
Amount of tax
barrel in excess of
base and subject to tax
Less than $0.20
15% of amount
within bracket
$0.20, under $0.50
$0.03 plus 30% of
amount within bracket
$0.50, under $1.20
$0.12 plus 60% of
amount within bracket
$1.20, under $3.00
$0.54 plus 80% of
amount within bracket
$3.00 and over
$1.98 plus 90% of
amount within bracket
(c) The windfall profits tax does not include
a "plowback" provision, nor does it contain
exemptions for classes of production or
producers. It does, however, include the
limitation that the amount subject to tax may
not exceed 75 percent of the net income from
the barrel of crude oil. The tax will be
retroactive to January 1, 1975.
(d) The windfall profits tax reduces the
base for the depletion allowance.
more
17
III. Permanent Tax Reductions and Payments to Non-
Taxpayers Made Possible by Energy Conservation
Taxes.
Of the $30 billion in revenue raised annually by
the proposed conservation taxes outlined above,
about $5 billion is paid by governments through
the higher costs of energy in their purchases.
This $5 billion includes:
$3 billion by the Federal government.
$2 billion by state and local governments.
The President is proposing to the Congress that
$2 billion of the revenues be paid to State and
local governments, pursuant to the distribution
formulas applicable to general revenue sharing.
The other $25 billion will be returned to the
economy mostly in the form of tax cuts. As in
the case of the temporary tax reduction, this
permanent change will be divided between indi-
viduals and corporations on a 75-25 percent
basis, about $19 billion for individuals and
about $6 billion for corporations. Specifically,
this would include:
A. Reductions for Individuals in 1975 --
Tax cuts for individuals will be achieved in two
ways: (1) through an increase in the Low Income
Allowance and (2) a cut in the schedule of tax
rates. In this way, tax-paying individuals will
receive a reduction of approximately $16 1/2
billion, with proportionately larger cuts going
to low-and middle-income families. The Low
Income Allowance will be increased from the
présent $1,300 level to $2,600 for joint returns
and $2,000 for single returns. That will bring
the level at which returns are nontaxable to
what is approximately the current "poverty level"
of $5,600 for a family of 4. In addition, the
tax rates applicable to various brackets of in-
come will be reduced. The aggregate effects of
these changes are as follows:
more
(OVER)
18
(1975 Levels)
($billions)
Adjusted
:
Income Tax
:
Amount of
:
Percentage
Gross Income
:
Paid Under
:
Income Tax :
Reduction in
Class
:
Present Law
:
Reduction
:
Income Tax
($000)
(
%
0 -
3
3
- .25
-83.3%
3 -
5
1.8
- 1.20
-66.7
5 -
7
4.0
- 1.96
-49.0
7 - 10
8.9
- 3.38
-38.0
10 - 15
21.9
- 4.72
-21.6
15 - 20
22.8
- 2.70
-11.8
20 - 50
44.4
- 2.15
- 4.8
50 - 100
13.5
- .11
- 0.8
100 and over
13.3
- .03
- 0.2
Total
130.9
-16.50*
-12.6
*Does not include payments to nontaxpayers
The effect of these tax changes can be illustrated
for a family of 4, as follows:
Adjusted
Present
New
Tax
Percent
Gross Income
Tax I/
Tax
Saving
Saving
$ 5,600
$ 185
$
0
$185
100.0%
7,000
402
110
292
72.6
10,000
867
518
349
40.3
12,500
1,261
961
300
23.8
15,000
1,699
1,478
221
13.0
20,000
2,660
2,450
210
7.9
30,000
4,988
4,837
151
3.0
40,000
7,958
7,328
130
1.6
17
Calculated assuming Low Income Allowance or
itemized deductions equal to 17 percent of
income, whichever is greater.
B. Residential Conservation Tax Credit (Discussed
in the Energy Section of this Fact Sheet). The
President seeks legislation to provide incentives
to homeowners for making thermal efficiency improve-
ments, such as storm windows and insulation, in
existing homes. This measure, along with a stepped-up
public information program, could save the equivalent
of over 500,000 barrels of oil per day by 1985. Under
this legislation:
more
19
1. A 15 percent tax credit retroactive
to January 1, 1975 for the cost of certain
improvements in thermal efficiency in
residences would be provided. Tax credits
would apply to the first $1,000 of
expenditures and can be claimed during
the next three years.
2. At least 18 million homes could qualify
for these tax benefits, estimated to total
about $500 million annually in tax credits.
C.
Payments to Nontaxpayers of $2 billion.
The final component of the $19 billion
distribution to individuals is a distribu-
tion of nearly $2 billion to nontaxpayers
and certain low-income taxpayers. For this
low-income group, a special distribution of
$80 per adult will be provided, as follows:
1. Adults who would pay no tax ,even without
the tax reductions in A above, will receive
$80.
2. Adults who receive less than $80 in such
tax reductions will receive approximately the
difference.
3. Persons not otherwise filing returns but
eligible for these special distributions
will make application on simple forms provided
by the Internal Revenue Service on which they
would furnish their name, address, social
security number, and income,
4. For purposes of the special distribution,
"adults" are individuals who during the
year are at least 18 years old and who
are not eligible to be claimed as a
dependent under the Federal income tax laws.
5. Since most taxpayers will receive their
1975 income tax reductions in 1975 through
reductions in withholding on wages and
estimated tax payments, the special distribu-
tion to non-taxpayers and low-income
more
(OVER)
20
taxpayers will also begin in 1975.
It is anticipated that disbursement,
based on 1974 income can be made in
the summer of 1975.
D.
Tax Reductions for Corporations. The
corporate rate will be reduced by 6
percentage points, effectively lowering
the corporate rate from 48 percent to
42 percent for 1975. The resulting
benefit in 1975 is estimated at about
$6 billion.
IV.
Moratorium on New Federal Spending Programs.
The President announced that he would propose
no new Federal spending programs except for
energy. He also indicated that he would not
hesitate to veto any new spending programs
passed by the Congress. The need for the
moratorium is demonstrated by preliminary
FY 1976 Budget estimates:
Fiscal Years
Percent
Change
1974
1975
1976
75/74
76/75
Revenues
264.9
280
303
5.7%
8.2%
Outlays
268.4
314
349
17 %
11.1%
Deficit
-3.5
32-34
45-47
---
--
NOTE: Estimates for 1975 and 1976 are subject to
a variation of $2 billion in the final budget.
V.
Budget Reductions.
The budget figures shown above assume that
significant budget reductions proposed by
the President are effected. Including re-
ductions proposed in a series of special
messages sent to the last session of Congress,
these budget reductions total more than $17
billion. Of this total, over $6 billion will
result from the proposed 5% ceiling on Federal
pay increases and on those Federal benefit
programs that rise automatically with the
Consumer Price Index.
more
21
The following summarizes reductions in 1976 spending
to be included in the upcoming budget:
(Outlays
in billions)
Effect of budget reductions
proposed last year (including
administrative actions)
$8.9
Amounts overturned by the
Congress
-1.1
Remaining savings
7.8
Further reductions to be proposed:
Ceiling of 5% on Federal pay
and programs tied to the
CPI
6.1
Other actions planned
3.6
Total reductions
17.5
more
(OVER)
22
The following lists those programs to which the
5% ceiling will apply and shows spending amounts
for them:
Effect of 5% Ceiling on Pay Increases
and Programs Tied to CPI
(Fiscal year estimates; Dollars in billions)
1976 Outlays
Difference
1975
lithout
With
Programs Affected
1975-1976
Outlays
ceiling
ceiling
(with ceiling)
Social security
64.5
74.3
71.8
+7.3
Railroad
retirement
3.0
3.4
3.3
+0.3
Supplemental
Security
Income
4.7
5.5
5.4
+0.7
Civil service
and military
retirement
payments
13.5
16.2
14.9
+1.4
Foreign Service
retirement
.1
.1
.1
*
Food stamp
program
3.7
3.9
/
3.6
-0.1
Child
nutrition
1.3
1.8
1.6
+0.3
Federal salaries:
Military
23.2
23.1
22.5
-0.7
Civilian
35.5
38.9
38.0
+2.5
Coal miner
benefits
1.0
1.0
1.0
*
Total
150.5
168.2
162.1
+11.7
* Less than $50 million.
The 5% ceiling will take into account increases
that have already occurred since January 1, 1975.
Under the plan, after June 30, 1976, adjustments
would be resumed in the same way as before the
establishment of the 5% ceiling. However, no
catchup of the increases lost under the ceiling
would take place.
more
23
SUMMARY OF THE BUDGET IMPACT OF THE NEW TAXES AND FEES
AND THE TAX CUTS
The following table summarizes the estimated direct budget
impact, on a full-year-effective basis, of the tax and related
changes proposed by the President to deal with the economic
and energy situations:
Revenue Raising Measures
Estimated Amounts
($ billions)
Oil excise tax and import fee
+ 9 1/2
Natural gas excise tax
+ 8 1/2
Windfall Profits tax
+12
Total
+30
more
(OVER)
24
Estimated Amounts
Revenue Disbursing Measures
($ billions)
Energy rebates:
Income tax cuts, individuals
-16 1/2
Residential tax credit
- 1/2
Nontaxpayer distribution
- 2
Corporate tax cut
6
State and local governments
- 2
Federal government costs
- 3
Subtotal
-30
Temporary economic stimulus:
Individual tax refunds
-12 -
Investment credit increase
- 4
Subtotal
-16
Total Revenue Disbursing Measures
46
The tax and related changes will go into effect at different
times, but all of them during the year 1975:
-- The energy conservation taxes are proposed
to go into effect April 1.
-- The effect increase in import fees would go into
- $1 per barrel February 1.
- To $2 per barrel March 1.
- To $3 per barrel, if the energy taxes
have not been enacted, April 1.
-- The windfall profits tax on crude oil would
be effective as of January 1, 1975. First
payments of the tax would be made in the
third quarter.
-- The permanent tax cuts for individuals and
corporations made possible by the revenues
from the energy conservation taxes would be
effective as of January 1, 1975. The changes
in withholding rates for individuals are
expected to go into effect on June 1. The
withholding changes will be adjusted so that
12 months reduction is accomplished in the
7 months from June through December.
more
25
--- The tax credit for energy-saving improvements
to existing residences would go into effect
as of January 1, 1975.
-- The special distribution to nontaxpayers is
expected to be paid out in the summer of
1975.
--- The $2 billion distribution to State and
local governments would be effective with
the second quarter of 1975.
--- The temporary anti-recession tax cut for
individuals will be paid out in two
installments, in the second and third
quarters.
--- The one-year increase in the investment
tax credit becomes effective retroactively
to January 1, 1975.
The timing of the various changes suggests a pattern of
direct budget changes as follows. The timing of the
economic stimulus or restraint will depend, as well, on
such factors as the indirect effects of the budget changes,
the timing of the pass-through of higher energy costs to
final users, the extent to which the changes are anticipated,
and a variety of monetary and financial developments that
arise out of these changes.
Timing of Direct Budget Impact
($ billions)
Calendar Years
1975
1976
I
II
III
IV
I
II
III
IV
Energy Taxes
+0.2
+4.1
+12.6
+7.6
+7.6
+7.5
+7.5
+7.5
Return of Energy
Revenues to Economy
Tax Reduction
.0
-3.2
- 9.0
-9.0
-5.6
-7.9
-6.3
-6.4
Nontaxpayers
- 2.0
-2.0
S&L Gov'ts
.0
-0.5
- 0.5
--0.5
-0.5 -0.5
-0.5
-0.5
Federal Govt.
.0
.0
- 0.8
-0.7
-0.8 -0.7
-0.8
-0.7
Temporary Tax Cut .0
-6.1
-17.9
-0.6
-0.8
-0.9
0
0
Net Effect
+0.2
-5.7
- 7.6
--3.2
-0.1
-2.5
-2.1
-0.1
more
(OVER)
26
INFLATION IMPACT
Both major parts of the tax package require inflation
impact analysis. The excise taxes on crude oil and
natural gas, combined with the tariff and decontrol of
prices of both "old" oil and new natural gas, will add
to the general price level immediately. The consumer
price index is expected to rise by about two percent
when these tax and price increases go into effect.
However, this increase has a one-time impact on the
price level that, with exceptions in some areas, should
not add materially to inflationary pressures in future
years.
The inflationary impact of the $16 billion anti recession
tax cut is more difficult to assess. While some eco--
nomists may argue that a tax cut will add to the rate
of inflation during the year ahead, others would contend
that under present economic conditions, with unemploy-
ment high and many factories operating well below
capacity, the predominant effect of the tax cut will
be to stimulate spending, and that additional spending
will have only a slight impact on prices.
Whatever the precise price impact of this $16 billion
tax cut during 1975, the most important fact about it
from the standpoint of inflation is that it is temporary.
With the recession still under way, the rate of inflation
will be coming down -- it will be too high, but never-
theless moving in the right direction. After the economy
gets well into recovery, however, too much stimulus would
be sure to reverse the slowing of the inflation rate and,
indeed, start a new acceleration. Thus, the tax stimulus
must be temporary rather than permanent.
The President has declared a moratorium on new Federal
spending programs for this same reason. Budget expen-
ditures are rising rapidly this year, in part, because
of programs to aid the unemployed. That: is acceptable
and highly desirable in a recession to relieve the
burden on workers who are affected. It is also
desirable because spending under those programs
phases out as the economy recovers and unemployment
falls. The increased Federal spending is only temporary.
Over the long-term, however, both Federal spending and
lending have been rising much too fast, a fact that
accounts for a substantial part of our current economic
problems. A new burst of expenditure programs cannot
more
27
help the Nation recover from the current recession - the
impact would come much too late but it would surely do
much inflationary harm as the economy returns to prosperous
conditions in the years ahead. Therefore, at the same
time that taxes are being reduced to support a healthy
recovery, policies that would revive inflationary pressures
must be avoided after the recovery is underway. The size
of currently projected Federal budget deficits precludes
introduction of new spending programs now that would raise
inflationary pressures later. For this reason, the President
requested that no new spending programs, except as needed
in the energy area, be enacted so that we can regain control
of the budget over the long-run and permit a gradual return
to reasonable price stability.
PRESIDENTIAL PROPOSALS OF OCTOBER 8, 1974 RESUBMITTED FOR
CONGRESSIONAL ACTION
In addition to the comprehensive set of economic and
energy policies discussed in the State of the Union
Message, the President asked that the new Congress
pass quickly certain legislative proposals originally
requested in his October 8, 1974, message. Those
proposals would:
1.
Remove restrictions on the production of
rice, peanuts, and extra-long-staple cotton.
2.
Amend P.L. 480 to waive certain restrictions
on shipments of food under that Act to needy
countries for national interest or humanitarian
reasons.
3.
Amend the Antitrust Civil Process Act to strengthen
the investigation powers of the Antitrust Division
of the Department of Justice.
4.
Eliminate the U.S. Withholding tax on foreign
portfolio investments to encourage such
investment.
5.
Allow dividends paid on qualified preferred
stock to be an authorized deduction for de--
termining corporate income taxes to increase
incentives for raising needed capital in the
form of equity rather than debt.
6.
Create a National Commission on Regulatory
Reform and take prompt action on other reforms
of regulatory and administrative procedures
that will be recommended in the future.
more
(OVER)
28
7.
Strengthen our financial institutions and
provide a new tax incentive for investment
in residential mortgages.
8.
Permit more competition between different
modes of surface transportation (The Surface
Transportation Act).
9.
Amend the Employment Act of 1946 to make
explicit the goal of price stability.
(Substitute to promote maximum employ-
ment, maximum production, and stability
of the general price level in place of
the present language, "to promote maximum
employment, production and purchasing
power. ")
more
29
The President's Energy Program
(including energy taxes and fees)
The President's State of the Union Address outlined the Nation's
energy outlook, set forth national energy policy objectives,
and described actions he is taking immediately and indicated
proposals he is asking the Congress to pass.
BACKGROUND
Over the past two years, progress has been made in conserving
energy, expanding energy R&D and improving Federal government
energy organization. Despite such accomplishments, we have
not succeeded in solving fundamental problems and our National
energy situation is critical. Our reliance on foreign sources
of petroleum is contributing to both inflationary and reces-
sionary pressures in the United States. World economic
stability is threatened and several industrialized nations
dependent upon imported oil are facing severe economic
disruption.
With respect to the U.S. energy situation:
--
Petroleum is readily available from foreign
sources -- but at arbitrarily high prices,
causing massive outflow of dollars, and at
the risk of increasing our Nation's vulnera-
bility to severe economic disruption should
another embargo be imposed.
-
Petroleum imports remain at high levels
even at present high prices.
-
Domestic oil production continues to
decline as older fields are depleted and
new fields are years from production; 8.8
million barrels per day in 1974 compared
to 9.2 million in 1973.
-
Total U.S. petroleum consumption is
increasing, although at slower rates
due to higher prices.
--
Natural gas shortages are forcing curtailment of
supplies to many industrial firms and denial of
service to new residential customers. (14%
expected this winter versus 7% last year.) This
is resulting in unemployment, reductions in the
production of fertilizer needed to increase food
supplies, and increased demand for alternative
fuels primarily imported oil.
more
(OVER)
30
----
Coal production is at about the same level as in
the 1930's.
----
Nuclear energy accounts for only 1 percent of total
energy supply and new plants are being delayed,
postponed or cancelled.
Overall energy consumption is beginning to increase
again
U.S. vulnerability to economic and social impact
from an embargo increases with higher imports and
will continue to do so until we reverse current
trends, ready standby plans, and increase petroleum
storage.
Economic impacts of the four-fold increase in OPEC oil
prices include:
--
Heavy outflow of U.S. dollars (and, in effect,
jobs) to pay for growing oil imports about
$24 billion in 1974 compared to $2.7 billion
in 1970.
--
Tremendous balance of payments deficits and
possible economic collapse for those nations
of Europe and Asia that must depend upon
expensive imported oil as a primary energy
source.
:
Accumulation of billions of dollars of surplus
revenues in oil exporting nations -- approxi
mately $60 billion in 1974 alone.
U.S. ENERGY OUTLOOK
I.
Near--Term (1975-1977) : In the next 2-3 years, there are
only a few steps that can be taken to increase domestic
energy supply particularly due to the long lead time for
new production. 0il imports will thus continue to rise
unless demand is curbed.
II. Mid-Term (1975-1985) : In the next ten years, there is
greater flexibility. A number of actions can be taken
to increase domestic supply, convert from foreign oil
to domestic coal and nuclear energy, and reduce demand --
if the Nation takes tough actions. Vulnerability to an
embargo can be eliminated.
more
31
III. Long-Term (Beyond 1985) : Emerging energy sources can
play a bigger role in supplying U.S. needs -- the results
of the Nation's expanded energy research and development
program. U.S. independence can be maintained. New
technologies are the most significant opportunity for
other consuming nations with limited domestic resources.
NATIONAL ENERGY POLICY GOALS AND PRINCIPLES ANNOUNCED BY
THE PRESIDENT
I. Near-Term (1975-1977) : Reduce oil imports by 1 million
barrels per day by the end of 1975 and 2 million barrels
by the end of 1977, through immediate actions to
reduce energy demand and increase domestic supply.
(A) With no action, imports would be about 8 million
barrels per day by the end of 1977, more than
20 percent above the 1973 pre-embargo levels.
(B) Acting to meet the 1977 goal will reduce imports
below 1973 levels, assuring reduced vulnerability
from an embargo and greater consumer nation
cooperation.
(c) More drastic short-term reductions would have
unacceptable economic impacts.
II. Mid-Term (1975-1985) Eliminate vulnerability by
achieving the capacity for full energy independence
by 1985. This means 1985 imports of no more than
3-5 million barrels of oil per day, all of which can
be replaced immediately from a strategic storage
system and managed with emergency measures.
(A) With no action, oil imports by 1985 could be
reduced to zero at prices of $11 per barrel or
more -- or they could go substantially higher
if world oil prices are reduced (e.g., at $7
per barrel, U.S. consumption could reach
24 million barrels per day with imports of
above 12 million, or above 50% of the total.)
(B) The U.S. anticipates a reduction in world oil
prices over the next several years. Hence,
plans and policies must be established to
achieve energy independence even at lower
prices -- countering the normal tendency to
increase imports as the price declines.
more
(OVER)
32
(c) Actions to meet the 1985 goal will hold imports
to no more than 3.5 million barrels per day,
even at $7 per barrel prices. Protection against
an embargo of the remaining imports can then be
handled most economically with storage and
standby emergency measures.
III. Long-Term (Beyond 1985) : Within this century, the U.S.
should strive to develop technology and energy resources
to enable it to supply a significant share of the
Free World's energy needs.
(A) Other consuming nations have insufficient fossil
fuel resources to reach domestic energy
self-sufficiency.
(B) The U.S. can again become a world energy supplier
and foster world energy price stability -- much
the same as the nation did prior to the 1960's
when it was a major supplier of world oil.
IV. Principles: Actions to achieve the above national
principles: energy goals must be based upon the following
---
Provide energy to the American consumer at the
lowest possible cost consistent with our need
for secure energy supplies.
--
Make energy decisions consistent with our overall
economic goals.
--
Balance environmental goals with energy require-
ments.
Rely upon the private sector and market forces
as the most efficient means of achieving the
Nation's goals, but act through the government
where the private sector is unable to achieve
our goals.
I
Seek equity among all our citizens in sharing
of benefits and costs of our energy program.
Coordinate our energy policies with those of
other consuming nations to promote interde-
pendence, as well as independence.
more
33
ACTIONS ANNOUNCED TODAY BY THE PRESIDENT
I.
ACTIONS AMOUNCED BY THE PRESIDENT TO MEET
NEAR TERM GOALS (1975-1977)
To meet the national goals, the President outlined a com.
prehensive program of legislative proposals to the Congress
which he requested be enacted within 90 days and administra-
tive actions that he will begin implementing inmediately.
The legislative package is more effective and equitable than
the administrative program, but the President indicated that
the seriousness of the situation demanded immediate action.
These actions will reduce overall energy demand, increase
domestic production, increase conversion to coal, and reduce
oil imports. They include:
(A) Administrative Actions
1.
Import Fee -- Because of the seriousness
of the problem and because time is required
for Congressional action on his legislative
proposals, the President is acting immediately
within existing authorities to increase the
import fees on crude oil and petroleun
products. These new import fees would be
modified upon passage of the President's
legislative package.
(a) Import fees on crude oil and petroleum
products under the authority of the Trade Expan-
sion Act of 1962, as amended, will be increased
by $1 effective February 1, 1975; an additional
$1 effective March 1; and another $1 effective
April 1, for a total increase of $3.00 per
barrel. Currently existing fees will also
remain in effect.
(b) FEA's 'Old Oil Entitlements" program
will be utilized to spread price increases
on crude among all refiners and to lessen
disproportionate regional effects, par-
ticularly in the Northeast.
(c) As of February 1975, product imports
will cease to be covered by FEA's "Old Oil
Entitlements program. In order to overcome
any severe regional impacts that could be
caused by large fees in import dependent
areas, imported products will receive a
rebate corresponding to the benefit which
would have been obtained under that
program. The rebate should be approximately
$1.00 in February, $1.40 in larch, and $1.80
per barrel in April.
(d) This import fee program would reduce
imports by about 500,000 barrels per day.
In April it would generate about $400 million
per month in revenues.
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34
2.
Backup Import Control Program -- The energy
conservation measures and tax proposals
will be supplemented by the use of Presidential
power to limit oil imports as necessary to
achieve the near-term goals.
3.
Crude Oil Price Decontrol -- To stimulate
production and further cut demand, steps
will be taken to remove price controls
on domestic crude oil by April 1, 1975,
subject to congressional disapproval as
provided by 84(g) of the Emergency
Petroleum Allocation Act of 1973.
4.
Increase Public Education on Energy
Conservation -- Energy Resources Council
will step up its efforts to provide infor-
mation on energy conservation methods and
benefits.
(B) Legislative Proposals
1.
Comprehensive Tax and Decontrol Program --
The President asked the Congress to pass
within 90 days a comprehensive legislative
package which could lead to reduction of
oil imports of 900,000 barrels per day
by 1975 and 1.6 million barrels by 1977.
Average oil prices would rise about $4.00
per barrel of $.10 per gallon. The package
which will raise $30 billion in revenues
on an annual basis includes:
(a) Windfall Profits Tax -- A tax on all
domestic crude oil to capture the windfall
profits resulting from price decontrol.
The tax would take 88% of the windfall
profits on crude oil and would phase out
over several years. The tax would be
retroactive to January 1, 1975.
(b) Petroleum Excise Tax and Import Fee --
An excise tax on all domestic crude oil
of $2 per barrel and a fee on imported
crude oil and product imports of $2 per
barrel. The new, administratively established
import fee of $3 on crude oil would be reduced
to $2.00 and $1.20 fee on products would be
increased to $2.00 when the tax is enacted.
The product import fee would keep the excise
tax from encouraging foreign refining and
the related loss of jobs to the U.S.
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35
(c) New Natural Gas Deregulation -- Remove
Federal interstate price regulation on new
natural gas to increase domestic production
and reduce demand for scarce natural gas
supplies.
(a) Natural Gas Excise Tax -- An excise
tax on natural gas of 37c per thousand
cubic feet (mcf), which is equivalent
on a Btu basis to the $2 per barrel petroleum
excise tax and fee. This will discourage
attempts to switch to natural gas and acts
to reduce natural gas demand curtailments.
Since the usual results of gas curtailments
is a switch to oil, this will limit the
growth of oil imports.
2.
Elk Hills Naval Petroleum Reserve. The
President is asking the Congress to permit
production of the Elk Hills Naval Petroleum
Reserve (NPR #1) under Navy control.
Production could reach 160,000 barrels
per day early in 1975 and 300,000 barrels
per day by 1977. The oil produced would
be used to top off Defense Department
storage tanks, with the remainder sold
at auction or exchanged for refined
petroleum products used by the Department
of Defense. Revenues would be used to
finance further exploration, development
and production of the Naval petroleum
reserves and the strategic petroleum
storage.
3.
Conversion to the Use of Domestic Coal.
The President is asking the Congress to
amend the Clean Air Act and the Energy
Supply and Environmental Cooriination
Act of 1974 to permit a vigorous program
to make greater use of domestic coal to
reduce the need for oil. This program
would reduce the need for oil imports
by 100,000 barrels per day in 1975 and
300,000 barrels in 1977. These amend-
ments would extend FEA's authority to
grant prohibition orders from 1975 to
1977, prohibit powerplants early in the
planning process from burning oil and gas,
extend FEA enforcement authority from 1978
to 1985, and make clear that coal burning
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36
installations that had originally planned
to convert from coal to oil be eligible
for compliance date extensions. It would
give EPA authority to extend compliance
dates and eliminate restrictive regional
environmental limitations. A plant could
convert as long as its own emissions do
not exceed ambient air quality standards.
II. ACTIONS AMNOUNCED BY THE PRESIDENT TO MEET MID-TERM
GOALS (1975-1985)
These actions are designed to meet the goal of achieving
the capability for energy independence by 1985. The actions
include measures to increase domestic energy production
(including measures to cope with constraints and strike
a balance between environmental and energy objectives),
reduce energy demand, and prepare for any future emergency
resulting from an embargo.
(A) Supply Actions
1.
Naval Petroleum Reserve No. 4 (Legislative
proposal) -- The President is asking the
Congress to authorize the exploration, de-
velopment and production of MPR-4 in Alaska
to provide petroleum for the domestic economy,
with 15-20% earmarked for military needs and
strategic storage. The reserves in NPR-4
which are now largely unexplored could pro-
vide at least 2 million barrels of oil per
day by 1985. Under the legislative proposal:
(a) The President would be authorized to
explore, develop and produce NPR-4.
(b) The Government's share of production
(approximately 15-20%) would be used to
help finance the strategic storage system
and to help fulfill military petroleum
requirements. Any other receipts go to
the United States Treasury as miscellaneous
receipts.
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37
2.
OCS Leasing (Administrative) -- The President
reaffirmed his intention to continue an
aggressive Outer Continental Shelf leasing
policy, including lease sales in the Atlantic,
Pacific, and Gulf of Alaska. Decisions on
individual lease sales will await completion
of appropriate environmental studies. In-
creased OCS leasing could add domestic pro-
duction of 1.5 million barrels of oil and
additional supplies of natural gas by 1985.
There will be close cooperation with Coastal
states in their planning for possible increased
local development. Funding for environmental
studies and assistance to States for planning
has been increased in FY 1975.
3.
Reducing Domestic Energy Price Uncertainty
(Legislative proposal) -- Legislation will
be requested authorizing and requiring the
President to use tariffs, import quotas,
import price floors, or other measures to
achieve domestic energy price levels
necessary to reach self-sufficiency goals.
This legislation would enable the President
to cope with possible large-scale fluctua-
tions in world oil prices.
4.
Clean Air Act Amendments (Legislative
proposal) -- In addition to the amendments
outlined earlier for short-term goals, the
President is asking for other Clean Air
Act amendments needed for a balance between
environmental and energy goals. These
include:
(a) Legislative clarification to resolve
problems resulting from court decisions
with respect to significant air quality
deterioration in areas already meeting
health and welfare standards.
(b) Extension of compliance dates through
1985 to implement a new policy regarding
stack gas scrubbers --- to allow use of
intermittent control systems in isolated
power plants through 1935 and requiring
other sources to achieve control as soon
as possible.
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38
(c) A pause for 5 years (1977-1981 model
years) for nationwide auto emission standards
at the current California levels for hydro-
carbons (0.9 grams per mile) and carbon
monoxide ( ) grams per mile), and at 1975
standards (3.1 grams per mile) for oxides
of nitrogen (with the exception of California
which has adopted the 2.0 standard). These
standards for hydrocarbons (HC) and carbon
monoxide (CO) are more stringent than now
required nationwide for 1976 model year's
cars. The change from the levels now
required for 1977-1981 model years in the
law will have no significant impact on
air quality standards, yet they will facilitate
attainment of the goal of 40% increase in
auto fuel efficiency by the 1980 model year.
( a) EPA will shortly begin comprehensive
hearings on emission controls and fuel
economy which will provide more detailed
data for Congressional consideration.
5.
Surface Mining (Legislative proposal) --
The President is asking the Congress to pass
a surface mining bill which strikes a balance
between our desires for reclamation and
environmental protection and our need to
increase domestic coal production substan-
tially over the next ten years. The proposed
legislation will correct the problems which
led to the President's veto of a surface
mining bill last year.
6.
Coal Leasing (Administrative) --- To assure
rapid production from existing leases and to
make new, low sulfur coal supplies available,
the President directed the Secretary of the
Interior to:
(a) Adopt legal diligence requirements to
assure timely production from existing
leases.
(6) Meet with Western Governors to explore
regional questions on economic, environmental
and social impacts associated with new Federal
coal leases.
(c) Design a program of new coal leasing
consistent with timely development and
adequate return on public assets, if proper
environmental safeguards can be provided.
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39
7.
Electric Utilities -- The President is asking
the Congress for legislation concerned with
utilities. In recent months, 60%
of planned nuclear capacity and 30% of non-
nuclear capacity additions have been postponed
or cancelled by electric utilities. Financing
problems are worsening and State utility
commission practices have not assured recovery
of costs and adequate earnings. The transition
from oil and gas-fired plants to coal and nuclear
has been slowed greatly -- contributing to
pressure for higher oil imports. Actions
involve:
(a) Uniform Investment Tax Credit (Legislative) --
an increase in the investment tax credit to
eliminate the gap between utilities and other
industries -- currently a 4% rate applies to
utilities and 7% to others.
(b) Higher Investment Tax Credit (Legislative) --
An increase in investment tax credit for all
industry, including utilities, for 1 year --
to 12%. The 12% rate would be retained for
two additional years for all power plants
except oil and gas-fired facilities.
(c) Preferred Stock Dividend Deductions
(Legislative) -- A change in tax laws applica-
ble to all industries, including utilities,
which allows deductions of preferred stock
dividends for tax purposes to reduce the
cost of capital and stimulate equity rather
than debt financing.
(d) Mandated Reform of State Utility Commission
Processes (Legislative) -- The legislation
would selectively reform utility commission
practices by: (1) setting a maximum limit
of 5 months for rate or service proceedings;
(2) requiring fuel adjustment pass-throughs,
including taxes; (3) requiring that con-
struction work in progress be included in a
utility's rate base; (4) removing any rules
prohibiting a utility from charging lower
rates for electric power during off-peak
hours; and (5) allowing the cost of pollu-
tion control equipment to be included in
the rate base.
(e) Energy Resources Council Study
(Administrative) -- Review and report to the
President on the entire regulatory process
and financial situation relating to electric
utilities and determine what further reforms
or actions are needed. ERC will consult
with State utility commissions, governors,
public utilities and consumers.
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40
o
Nuclear Power To accelerate the growth of
nuclear power which supplies only one percent
of our energy needs, the President is pro-
posing, in addition to actions outlined above:
(a) Expedited Licensing and Siting (Legislative)
A Nuclear Facility Licensing Act to assure more
rapid siting and licensing of nuclear plants.
(b) 1976 Budget Increase (Legislative) --
An increase of $41 million in appropriations
for nuclear safety, safeguards, and waste
management.
9.
Energy Facilities Siting (Legislative) --
Legislation would reduce energy facility siting
bottlenecks and assure sites for needed facili
ties with proper land use considerations:
(a) The legislation would require that states
have a comprehensive and coordinated process
for expeditious review and approval of energy
facility applications; and state authorities
which ensure that final State energy facility
decisions cannot be nullified by actions of
of local governments.
(b) Provision for owners of eligible facilities
or citizens to sue States for inaction.
(c) Provide no Federal role in making case by
case siting decisions for the States.
(B) Energy Conservation Actions
The President announced a number of energy con
servation neasures to reduce demand, including:
1.
Auto Gasoline Mileage Increases (Administrative)
The Secretary of Transportation has
obtained written agreements with each of
the major domestic automobile nanufacturers
which will yield a 40 percent improve-
ment in fuel efficiency on a weighted
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41
average for all new autos by 1980 model year.
These agreements are contingent upon relaxation
of Clean Air Act auto emission standards. The
agreement provides for interim goals, Federal
monitoring and public reporting of progress.
2.
Building Thermal Standards (Legislative) --
The President is asking Congress for legislation
to establish national mandatory thermal (heating
and cooling) efficiency standards for new homes
and commercial buildings which would save the
equivalent of over one-half million barrels of
oil per day by 1985. Under this legislation:
(a) The Secretary of Housing and Urban Develop-
ment shall consult with engineering, architectural,
consumer, labor, industry, and government repre-
sentatives to advise on development of efficiency
standards.
(6) Thermal standards for one and two-family
dwellings will be developed and implementation
would begin within one year. New minimum
performance standards for energy in commercial
and residential buildings would be developed
and implemented as soon thereafter as practicable.
(c) Standards would be implemented by State
and local governments through local building
codes.
(d) The President also directed the Secretary
of Housing and Urban Development to include
energy conservation standards in new mobile
home construction and safety standards.
3.
Residential Conservation Tax Credit --
The President is asking Congress for legislation
to provide incentives to homeowners for making
thermal efficiency improvements in existing
homes. This measure, along with a stepped-up
public information program, could save the
equivalent of over 500,000 barrels per day
by 1985. Under this legislation:
(a) A 15 percent tax credit retroactive to
January 1, 1975 for the cost of certain improve-
ments in thermal efficiency in residences would
be provided. Tax credits would apply to the
first $1,000 of expenditures and can be claimed
during the next three years.
(b) Improvements such as storm windows, and
insulation, would qualify for the tax credit.
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42
4.
Low-Income Energy Conservation Program
(Legislative) -- The President is proposing
legislation to establish a Low-Income Energy
Conservation Program to offer direct subsidies
to low-income and elderly homeowners for certain
energy conservation improvements such as insula-
tion. The program is modeled upon a successful
pilot program in Maine.
(a) The program would be administered by FEA,
under new legislation, and the President is
requesting supplemental appropriations in 1975
and $55 million in fiscal year 1976.
(b) Acting through the States, Federal funds
would be provided to purchase materials.
Volunteers or community groups could install
the materials.
5.
Appliance Efficiency Standards (Administrative) --
The President directed the Energy Resources
Council to develop energy efficiency goals for
major appliances and to obtain agreements
within six months from the major manufacturers
of these appliances to comply with the goals.
The goal is a 20% average improvement by 1980
for all major appliances, including air condi-
tioners, refrigerators and other home appliances.
Achievement of these goals would save the
equivalent of over one-half million barrels of
oil per day by 1985. If agreement cannot be
reached, the President will submit legislation
to establish mandatory appliance efficiency
standards.
6.
Appliance and Auto Efficiency Labelling Act
(Legislative) -- The President will ask the
Congress to enact a mandatory labelling bill to
require that energy efficiency labels be placed
on new appliances and autos.
(c) Emergency Preparedness
The President announced that comprehensive energy
emergency legislation will be proposed, encompassing
two major components.
1.
Strategic Petroleum Storage (Legislative) --
Development of an energy storage system of one
billion barrels for domestic use and 300 million
barrels for military use. The legislation will
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43
authorize the government to purchase and pre-
pare the storage facilities (salt domes or steel
tanks), while complex institutional questions
are resolved and before oil for storage is
actually purchased. FEA will develop the over-
all program in cooperation with the Department
of the Interior and the Department of Defense.
All engineering, planning, and environmental
studies would be completed within one year.
The 1.3 billion barrels will not be complete
for some years, since time is required to
purchase, prepare, and fill the facilities.
2.
Standby and Planning Authorities (Legislative) --
The President is requesting a set of emergency
standby authorities to be used to deal with
any significant future energy shortages. These
authorities would also enable the United States
to fully implement the agreement on an Inter-
national Energy Program between the United
States and other nations signed on November 18,
1974. This legislation would include the
authority to:
(a) Implement energy conservation plans to
reduce demand for energy;
(b) allocate petroleum products and establish
price controls for allocated products;
(c) ration fuels among end users;
(d) allocate materials needed for energy
production where such materials may be in short
supply;
(e) increase production of domestic oil; and
(f) regulate petroleum inventories.
III. ACTIONS ANNOUNCED BY THE PRESIDENT TO MEET LONG-TERM
GOALS (BEYOND 1985)
The expanded research and development program on which the
nation is embarked will provide the basis for increasing
domestic energy supplies and maintaining energy independence.
It will also make it possible in the long run for the U.S. to
export energy supplies and technology to others in the free
world. Important elements are:
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44
(A) Synthetic Fuels Program (Administrative) -- The
President announced a National Synthetic Fuels
Commercialization Program to ensure at least one
million barrels per day equivalent of synthetic fuels
capacity by 1985, using technologies now nearing
commercial application.
1.
Synthetic fuel types to be considered will
include synthetic crude from oil shale and a
wide range of clean solid, liquid, and gaseous
fuels derived from coal.
2.
The Program would entail Federal incentives
(possibly including price guarantees, purchase
agreements, capital subsidies, leasing pro-
grams, etc.), granted competitively, and would
be ained at the production of selected types
of gaseous and liquid fuels from both coal and
oil shale.
3.
The program will rely on existing legislative
authorities, including those contained in the
Federal Non-Huclear Energy Research and Develop-
ment Act of 1974, but new legislative authori-
ties will be requested if necessary.
(B) Energy Research and Development Program -- In the
current fiscal year, the Federal Government has
greatly increased its funding for energy research
and development programs. These Federal programs
are a part of a much larger national energy R & D
effort and are carried out in cooperation with industry,
colleges and universities and others. The President
stated that his 1976 Budget will continue to empha-
size these accelerated programs which include research
and the development of technology for energy conserva-
tion and on all forms of energy including fossil
fuels, nuclear fission and fusion, solar and geothermal.
(C) Energy Research and Development Administration -- (ERDA).
The President has signed an Executive Order which
activates, effective January 19, 1975, the Energy
Research and Development Administration. ERDA will
bring together in a single agency the major Federal
energy R & D programs which will have the responsibility
for leading the national effort to develop technology
to assure that the U.S. will have an ample and secure
supply of energy at reasonable prices. ERDA con-
solidates najor R & D functions previously handled
by the AEC, Department of the Interior, National
Science Foundation and Environmental Protection Agency
ERDA will also continue the basic research, nuclear
materials production and weapons programs of the AEC.
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45
IMPACTS OF NEAR AND MID-TERM
ACTIONS ON PETROLEUM CONSUMPTION AND IMPORTS
NEAR TERM PROGRAM
(MMB/D)
1975
1977
CONSUMPTION IF NO NEW ACTIONS
18.0
18.3
IMPORTS IF NO NEW ACTIONS
6.5
8.0
IMPORT SAVINGS
Less Service Savings by Short-term
1975
1977
Actions:
Production from Elk Hills
0.2
0.3
Coal Conversion
0.1
0.3
Tax Package
0.9
1.6
TOTAL IMPORT SAVINGS
1.2
2.2
REMAINING IMPORTS
5.3
5.8
MID-TERM PROGRAM
CONSUMPTION IF NO NEW ACTIONS
23.9 MMB/D
IMPORTS IF NO NEW ACTIONS
12.7 MMB/D
Less Savings Achieved by
1985 IMPACT
Following Actions:
ON IMPORTS
OCS Leasing
1.5
NPR-4 Development
2.0
Coal Conversion
0.4
Synthetic Fuel Commercialization
0.3
Auto Efficiency Standards
1.0
Continuation of Taxes
2.1
Appliance Efficiency Goals
0.1
Insulation Tax Credit
0.3
Thermal Standards
0.3
Total Import Savings by Actions
8.0
Remaining Imports
4.7
Less:
Emergency Storage
3.0
Standby Authorities
1.7
NET IMPORT VULNERABILITY
0
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46
INTERNATIONAL ENERGY POLICY AND FINANCING ARRANGEMENTS
BACKGROUND
The cartel created by the Organization of Petroleum
Exporting Countries (OPEC) has successfully increas d
their governments' price for exports of oil from
approximately $2 per barrel in mid 1973 to $10 per
barrel today. Even after paying for their own increased
imports, OPEC nations will report a surplus of over
$60 billion in 1974, which must be invested. Oil
price increases have created serious problems for the
world economy. Inflation pressures have been inten..
sified. Domestic economies have been disrupted.
Consuming nations have been reluctant to borrow to
finance their oil purchases because of current
balance of payments risks and the burden of future
interest costs and the repayment of massive debts.
International economic relations have been distorted
by the large flows of capital and uncertainties
about the future.
U.S. POSITION
The United States believes that the increased price of
oil is the major international economic problem and has
proposed a comprehensive program for reducing the current
exorbitant price. Oil importing nations must cooperate
to reduce consumption and accelerate the development of
new sources of energy in order to create the economic
conditions for a lower oil price. However until the
price of oil does decline, international stability must
be protected by financing facilities to assure oil
importing nations that financing will be available on
reasonable terms to pay for their oil imports. The
United States is active in developing these financing
programs. Once a cooperative program for energy con-
servation and resource development and the interim
financing arrangements are agreed upon, it will be
possible to have constructive meetings with the oil
producers.
ACTIONS TAKEN BY OIL CONSUMING NATIONS
The oil consuming nations have already created the
International Energy Agency to coordinate conservation
and resource development programs and policies for
reacting to any future interruption of oil exports
by producing nations. The four major elements of
this cooperative program are:
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47
An emergency sharing arrangement to immediately
reduce member vulnerability to actual or threatened
embargoes by producers
A long-term cooperative program to reduce member..
nation dependence on imported oil,
A comprehensive information system designed to
improve our knowledge about the world oil market
and to provide a basis for consultations among
members and individual companies; and
A framework for coordinating relations with producing
nations and other less developed consuming countries.
The International Energy Agency has been established as
an autonomous organization under the OECD. It is open
to all OECD nations willing and able to meet the obli--
gations created by the program. This international
agreement establishes a number of conservation and energy
resources development goals but each member is left free
to determine what domestic measures to use in achieving
the targets. This flexibility enables the United States
to coordinate our national and international energy goals.
OTHER U.S. ACTIONS AND PROPOSALS
The United States has also supported programs for pro-
tecting international stability against distorting
financial flows created by the sudden increase of oil
prices. Although the massive surplus of export earnings
accumulated by the producing nations will have to be
invested in the oil consuming nations, it is unlikely
that these investments will be distributed so as to
match exactly the financing needs of individual impor--
ting nations. Fortunately the existing complex of
private and official financial institutions has, in the
case of the industrialized countries, been effective
in redistributing the massive oil export earnings to
date. However, there is concern that some individual
industrialized nations may not be able to continue to
obtain needed funds at reasonable interest rates and
terms during the transition period until supplies are
increased, conservation efforts reduce oil imports and
the price of oil declines. Therefore, the United States
has supported various proposals for "reshuffling" the
recycled funds among oil consuming nations, including:
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48
Modification of International Monetary Fund (IMF)
rules to permit more extensive use of existing
IMF resources without further delay;
Creation of a financial solidarity facility as
a 'safety net" for participating OECD countries
that are prepared to cooperate in an effort to
increase conservation and energy resource develop-
ment actions to create pressure to reduce the
present price of oil;
Establishment of a special trust fund managed by
the IMF which would extend balance of payments
assistance to the most seriously affected develop--
ing nations on a concessional basis not now possible
under IMF rules. The United States hopes that oil
exporting nations might contribute a major share
of the trust fund and that additional resources might
be provided through the sale of a small portion of
the IMF's gold holdings in which the differential
between the original cost of the gold and the
current market price would be added to the trust
fund; and
An increase in IMF quotas which would make more
resources available in 1976.
These proposals will be discussed at ministerial level
meetings of the Group of Ten, the IMF Interim Committee
and the International Monetary Fund/International Bank
for Reconstruction and Development Committee in
Washington, D.C. January 14 to 17.
In these meetings, the United States will continue to
press its views concerning the fundamental importance
of international cooperation to achieve necessary con-
servation and energy resources development goals as a
basis for protecting our national security and underlying
economic strength.
# # #
CALL OL OHM
WHO TO CALL
If there are questions about the information contained
in this book, or if other questions arise, please feel
free to call any of the following experts for guidance.
If they feel your question would be better addressed
by someone else, they will put you in touch with him.
ENERGY
Eric R. Zausner
Phone:
(202) 961-8233
Acting Deputy Administrator
Federal Energy Administration
Bruce A. Pasternack
Phone: (202) 961-6295
Acting Deputy Assistant
Administrator for Policy
Federal Energy Administration
ECONOMIC POLICY
John H. Auten
Phone:
(202) 964-5914
Director, Office of Financial
Analysis
Department of the Treasury
TAX POLICY
Frederic Hickman
Phone: (202) 964-5561
Assistant Secretary for
Tax Policy
Department of the Treasury