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The original documents are located in Box 13, folder "Economic and Energy Program (3)"
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States of America his copyrights in all of his unpublished writings in National Archives collections.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
sample
JAN 9 1975
THE WHITE HOUSE
WASHINGTON
January 9, 1975
MEETING WITH REPRESENTATIVE AL ULLMAN (D-ORE)
Friday, January 10, 1975
5:30-6:00 p.m. (30 minutes)
The Oval Office
From: Max L. Friedersdorf m.b.
I. PURPOSE
To advise Representative Ullman of the President's
decisions on the economy and energy.
II. BACKGROUND, PARTICIPANTS AND PRESS PLAN
A. Background:
1. The President has made his decisions regarding the
economy and energy and will be presenting the State of
the Union Message to the Congress soon.
2. Al Ullman, 60, starting his 10th term in the House, is
slated to take over the Chairmanship of the House Ways
and Means Committee in the 94th Congress.
3. Ullman advocates a three-part tax plan to boost the
economy, including a quick tax cut, longer term tax
reform, and a new revenue source, possibly a value
added tax (VAT).
4. Ullman ranks his committee priorities this year as tax
reform, national health insurance, renovation of the
social security system, welfare reform and overhaul of
the unemployment compensation system. Ullman will be
dealing with a committee enlarged from 25 to 37, and
packed with 16 newcomers, mostly moderate and liberal.
B. Participants: The President
Rep. Al Ullman
Jack Marsh (staff)
Max Friedersdorf (staff)
C. Press Plan: Meeting to be announced by the Press Office
as a meeting to discuss economic matters
expected to be before the 94th Congress,
White House photographer only.
2
III. TALKING POINTS
1. Al, I have reached a number of decisions regarding
recommendations for the economy and on energy.
2. These will be submitted to the new Congress soon and
I wanted to share them with you.
3. Basically, my economic decisions involve recommendations
for a tax cut and no new spending requests.
4. In energy, we will implement by administrative action,
a $3.00 per barrel import tariff starting February 1.
5. We will also request a number of legislative proposals
related to energy, including an excise tax, decontrols,
windfall profits tax, deregulation, coal conversion and
production from Elk Hills. (See Tab A)
6. I would like your support and would appreciate your
reaction and suggestions.
SUMMARY OF ENERGY PROGRAM
SHORT TERM PROGRAM (now-1977)
Immediate, Administrative Actions
impose $3 per barrel import tariff, phased in
$1 increments starting February 1
--- modify the crude equalization program to mitigate
regional and economic impacts
Legislative Proposals
-- $2 per barrel excise tax on all refinery
inputs and petrolcum product imports
-- administrative decontrol of old oil on April 1 with
enactment of windfall profits tax
--- deregulation of new natural gas and imposition
of a $.37 per mcf excise tax
- amendments to coal conversion authorities to
allow more fuel switching
-- provision for production from Elk Hills for
domestic markets
Impact
-- raises consumer petroleum prices by an
average of about 10¢ per gallon
-- cuts imports by 1 million B/D in 1975
-- cuts imports by 2 million B/D in 1977
-- stops growing curtailments and unemployment
from natural gas shortages
-2-
MID-TERM PROGRAM (1975-1985)
Energy Supply
Increasing domestic oil and gas supply
legislation to allow development of NPR
#4 for domestic markets
major leasing of frontier OCS areas
-- Increasing coal use
submission of revised surface mine
legislation
Clean Air Act amendments
new coal leasing program to require
production from existing leases and
start new leases
-- Stimulating nuclear power development
resubmit nuclear licensing legislation
stepped up funding for safety and
waste management
-
Restoring utility industry financial viability
increase in investment tax credit
new tax treatment for preferred stock
dividends
limited Federal override of state
utility commissions
Minimizing world oil price uncertainty
new Presidential authority to set
price floors, quotas or other measures
to assure energy industry protection and
domestic invulnerability
?
I
-3-
Energy Conservation
-- Increasing auto efficiency
legislative freeze on auto emission
standards
signed agreement with manufacturers on
40 percent goal
-- Increasing appliance efficiency
resubmission of mandatory labeling
legislation
.
establish voluntary goals for all
major appliance manufacturers
--- Increasing efficiency of buildings
legislation to set mandatory thermal
standards for new buildings
15 percent investment tax credit for
homeowners' expenditures for insulation
$150 million grant program to assist
low-income homeowners
Emergency Measures
-- Standby rationing/allocation and price control
authorities for use in future embargo
--- Legislation and authorization to build a one
billion barrel standby storage system
Impact
--- Cut imports from over 12 million B/D to under
5 million barrels per day in 1985
-- Assures invulnerability by providing capacity
to completely replace remaining imports by
standby measures
4
LONG TERM PROGRAM (POST 1985)
--
Commitment to needed R&D funds
--
New national synthetic fuels program
1 million B/D goal by 1985
use of price guarantees or other
incentives to assure goal is reached
GERALD
?
JAN 10 1975
m
THE WHITE HOUSE
WASHINGTON
file
January 10, 1975
MEETING WITH SENATE AND HOUSE MINORITY LEADERS
Saturday, January 11, 1975
11:00-11:30 a.m. (30 minutes)
The Oval Office
From: Max L. Friedersdorf m.6.
I. PURPOSE
To advise Minority Leaders Hugh Scott and John Rhodes
of Presidential decisions regarding the economy and
energy, and to seek their reactions and recommendations.
II. BACKGROUND, PARTICIPANTS AND PRESS PLAN
A. Background:
1. The President has made his decisions regarding the
economy and energy and will be presenting the State
of the Union Message to Congress soon.
2. Minority Leaders Scott and Rhodes have both made
recommendations and are keenly interested in the
President's decisions (See Tab A).
B. Participants: The President
Sen. Hugh Scott
Rep. John Rhodes
Jack Marsh (staff)
Max Friedersdorf (staff)
C. Press Plan: Press Office to announce meeting as discussion
by the President and Leaders about opening of
the 94th Congress. White House photographs only.
III. TALKING POINTS
1. I have reached a number of decisions regarding the
economy and energy.
2. These will be submitted soon to the new Congress and
I wanted to share them with you.
3. Basically, my economic decisions involve recommendations
for a tax cut and no new spending program.
LIGRARY
2
4. On energy, we will implement by administrative action,
a phased $3.00 per barrel import tariff starting on
February 1.
5. We will also seek a number of legislative proposals
related to energy, including an excise tax, decontrols,
windfall profits tax, deregulation, coal conversion and
production from Elk Hills. (See Tab B)
6. We will push for prompt consideration and enactment.
I will need your strong support, if possible.
BERALD
1-8
HUGH SCOTT
PENNSYLVANIA
United States Senate
OFFICE OF THE MINORITY LEADER
WASHINGTON, D.C. 20510
January 8, 1975
The President
The White House
Washington, D.C.
Dear Mr. President:
I am pleased to respond to your call for suggestions
relating to the State of the Union message. Of course,
John Rhodes and I would be delighted to meet with you
personally to present our views, if you so desire.
It seems to me that an immediate tax cut is one good
way to increase savings and increase productivity through
higher demand. Accordingly, I favor increasing the personal
income tax exemption for individuals from $750 to $850. I
would also favor a 1% cut off the tax brackets or a 5% cut
across the board.
In regard to energy, I support the imposition of a
$3.00-per-barrel tax on imported oil. If this does reduce
demand, we can cut imports by at least 1 billion barrels per
day, perhaps more. The oil depletion allowance is another
item to be looked at critically. Perhaps it is time to
phase it out unless more oil profits can be recycled for
investments in new research and development, and if better
incentives for greater domestic production can be devised.
Obviously, this is the area to consider in any discussion of
windfall or excess profits taxes.
Generally, the economy would benefit from an expansion
of the investment tax credit. This would provide a much
needed boost for the industrial sector. The Federal Reserve
Board should increase the flow rate of money and credit from
the present 2% to at least 4%. This would expand capital
availability considerably. More help is needed to encourage
new housing, and new housing starts ought to be doubled.
In the winter months, we all start thinking about the
availability of gasoline. I am opposed to rationing, but I
GERAL FORD LISRARY
The President
- 2 -
January 8, 1975
am also opposed to long gasoline lines. A better manage-
ment or allocation system, spreading the burden evenly
around the country, should be devised for gasoline distribu-
tion. The Northeastern part of the country is sure to feel
the pinch to a greater degree than any other area. This
should be avoided and it can be.
One other matter, unrelated as it is, should be con-
sidered for the State of the Union Message. The Voting
Rights Act expires this year, and I will sponsor a bill ex-
tending it for another five years. Clarence Mitchell tells
me that, in a conversation with you, you indicated your
support for another extension, without extraneous amendments.
I hope very much that you can say this in your message.
Thank you for giving me this opportunity to express my
views prior to the State of the Union Address.
Sincerely,
Hugh
Hugh Scott
Republican Leader
BRAR
SUMMARY OF ENERGY PROGRAM
SHORT TERM PROGRAM (now-1977)
Immediate, Administrative Actions
--- impose $3 per barrel import tariff, phased in
$1 increments starting February 1
-- modify the crude equalization program to mitigate
regional and economic impacts
Legislative Proposals
-- $2 per barrel excise tax on all refinery
inputs and petrolcum product imports
- administrative decontrol of old oil on April 1 with
enactment of windfall profits tax
-- deregulation of new natural gas and imposition
of a $.37 per mcf excise tax
--- amendments to coal conversion authorities to
allow more fuel switching
-- provision for production from Elk Hills for
domestic markets
Impact
--- raises consumer petroleum prices by an
average of about 10¢ per gallon
-- cuts imports by 1 million B/D in 1975
---- cuts imports by 2 million B/D in 1977
--- stops growing curtailments and unemployment
from natural gas shortages
LIBRARY
-2-
MID-TERM PROGRAM (1975-1985)
Energy Supply
-- Increasing domestic oil and gas supply
legislation to allow development of NPR
#4 for domestic markets
major leasing of frontier OCS areas
-- Increasing coal use
submission of revised surface mine
legislation
Clean Air Act amendments
new coal leasing program to require
production from existing leases and
start new leases
-- Stimulating nuclear power development
resubmit nuclear licensing legislation
stepped up funding for safety and
waste management
-- Restoring utility industry financial viability
increase in investment tax credit
new tax treatment for preferred stock
dividends
limited Federal override of state
utility commissions
-- Minimizing world oil price uncertainty
new Presidential authority to set
price floors, quotas or other measures
to assure energy industry protection and
domestic invulnerability
-3-
Energy Conservation
-- Increasing auto efficiency
legislative freeze on auto emission
standards
signed agreement with manufacturers on
40 percent goal
-- Increasing appliance efficiency
resubmission of mandatory labeling
legislation
establish voluntary goals for all
major appliance manufacturers
-- Increasing efficiency of buildings
legislation to set mandatory thermal
standards for new buildings
15 percent investment tax credit for
homeowners' expenditures for insulation
$150 million grant program to assist
low-income homeowners
Emergency Measures
-- Standby rationing/allocation and price control
authorities for use in future embargo
-- Legislation and authorization to build a one
billion barrel standby storage system
Impact
-- Cut imports from over 12 million B/D to under
5 million barrels per day in 1985
-- Assures invulnerability by providing capacity
to completely replace remaining imports by
standby measures
LONG TERM PROGRAM (POST 1985)
--- Commitment to needed R&D funds
-- New national synthetic fuels program
1 million B/D goal by 1985
use of price guarantees or other
incentives to assure goal is reached
JAN 13 1975
THE WHITE HOUSE
WASHINGTON
January 13, 1975
MEETING WITH SENATOR RUSSELL LONG (D-La.)
Monday, January 13, 1975
2:00-2:30 P.M. (30 Minutes)
The Oval Office
From: Max L. Friedersdorf
I. PURPOSE
1. To brief Senator Long on the President's economic and energy
decisions.
II. BACKGROUND, PARTICIPANTS AND PRESS PLAN
A. Background:
1. The President has made his decisions regarding the economy
and energy and will be presenting his State of the Union Message
to Congress at 1 P.M., Wednesday, January 15.
2. Senator Long, Chairman of the Senate Finance Committee,
will handle much of the legislative requests made by the President.
3. Bill Simon has given Senator Long some information about the
President's decisions.
B. Participants: The President
Senator Russell Long
Jack Marsh (Staff)
Max Friedersdorf (Staff)
C. Press Plan: Announce the meeting to press as briefing by the
President on SOTU for Senator Long.
III. TALKING POINTS
1. Russell, I have reached a number of decisions regarding the
economy and energy.
2. Basically, my economic decisions involve recommendations
for a tax cut, and no new spending requests.
-2-
3. In energy, we plan to implement by administrative action,
a $3.00 per barrel import tariff starting February 1.
4. We will also request a number of legislative proposals in energy,
including an excise tax, decontrols, windfall profits tax,
deregulation, coal conversion and production from Elk Hills.
(See Tab A).
5. I know you will give my proposals all possible consideration,
and I'm sure we can work together on a sound program for the
nation's economic and energy needs.
SHORT TERM PROGRAM (now-1977)
Immediate, Administrative Actions
--- impose $3 per barrel import tariff, phased in
$1 increments starting February 1
- modify the crude equalization program to mitigate
regional and economic impacts
Legislative Proposals
- $2 per barrel excise tax on all refinery
inputs and petrolcum product imports
- administrative decontrol of old oil on April 1 with
enactment of windfall profits tax
--- deregulation of new natural gas and imposition
of a $.37 per mcf excise tax
- amendments to coal conversion authoritics to
allow more fuel switching
--- provision for production from Elk Hills for
domestic markets
Impact
---- raises consumer petroleum prices by an
average of about 10¢ per gallon
-- cuts imports by 1 million B/D in 1975
-- cuts imports by 2 million B/D in 1977
-- stops growing curtailments and unemployment
from natural gas shortages
MID-TERM PROGRAM (1975-1985)
Energy Supply
-- Increasing domestic oil and gas supply
legislation to allow development of NPR
#4 for domestic markets
major leasing of frontier OCS areas
-- Increasing coal use
submission of revised surface mine
legislation
Clean Air Act amendments
new coal leasing program to require
production from existing leases and
start new leases
--- Stimulating nuclear power development
resubmit nuclear licensing legislation
stepped up funding for safety and
waste management
-- Restoring utility industry financial viability
increase in investment tax credit
new tax treatment for preferred stock
dividends
limited Federal override of state
utility commissions
-- Minimizing world oil price uncertainty
new Presidential authority to set
price floors, quotas or other measures
to assure energy industry protection and
domestic invulnerability
-3-
Energy Conservation
-- Increasing auto efficiency
legislative freeze on auto emission
standards
signed agreement with manufacturers on
40 percent goal
- Increasing appliance efficiency
resubmission of mandatory labeling
legislation
establish voluntary goals for all
major appliance manufacturers
-- Increasing efficiency of buildings
legislation to set mandatory thermal
standards for new buildings
15 percent investment tax credit for
homeowners' expenditures for insulation
$150 million grant program to assist
low-income homeowners
Emergency Measures
-- Standby rationing/allocation and price control
authorities for use in future embargo
----- Legislation and authorization to build a one
billion barrel standby storage system
Impact
--- Cut imports from over 12 million B/D to under
5 million barrels per day in 1985
-- Assures invulnerability by providing capacity
to completely replace remaining imports by
standby measures
LONG TERM PROGRAM (POST 1985)
--
Commitment to needed R&D funds
----
New national synthetic fuels program
1 million B/D goal by 1985
use of price guarantees or other
incentives to assure goal is reached
CIA
1. Mr Speaker, as you know we have appointed a commission under
the chairmanship of the Vice President to investigate charges
of domestic spying by the CIA.
2. Meetings are already underway by the commission, and I have
instructed the Vice President to move vigorously.
3. Congress is also moving rapidly with hearings scheduled next
week by two Senate Committees. The Congress has a responsibility
and I am pleased they are active in this area.
4. However, at least eight separate Committees of the House and
Senate are in various stages of planning hearings.
.5. If some of these could be consolidated, perhaps joint House
and Senate hearings, it might expedite the resolution of the
problem. What do you think?
LEVI AND LYNN NOMINATIONS
1. FBI checks are complete on Ed Levi for Attorney General and
I expect to move the nomination to the Hill early next week.
2. I have also selected Jim Lynn to be Director of the Office
of Management and Budget, and will send his nomination up
next week.
3. Both of these positions are extremely important and I would
appreciate any support you might give for early hearings and
confirmation.
FEB 18 1974
Russ ROURKE - - W.W.
2ND FL.
Red circled PRAGRAPHS comprise
The TAX PROPOSACS.
Second DOCUMENT-PAGES 9-20--
ARC ReAlly MUST READING FOR
ANYONE GOING into A Q. t A.
306 Kelly
3
Begin an early recovery from the recession.
Begin bringing Federal spending and budget deficits
under control.
Reduce sharply the growth in oil imports and our
dependence on foreign energy sources through steps
to conserve energy and to increase domestic energy
production.
Offset the impact of higher energy costs and restore
purchasing power and growth in jobs and production.
Achieve the capabilities for energy independence by
1985 by increasing domestic energy production,
reducing demand and preparing for any further embargo.
Maintain energy independence beyond 1985 and make it
possible for the U.S. to export energy supply and
technology to others of the free world.
II. Major Presidential Actions and Proposals to the Congress
A. To begin an early recovery from the recession, the
President has asked the Congress to approve a one-
time tax cut of $16 billion consisting of:
1. $12 billion returned to individuals, accomplished
by a 12% rebate on 1974 taxes up to a $1,000
maximum per return. If Congress approves the plan
quickly, rebates would be computed by the IRS and
paid in two installments; the first in May or
June and second in September, 1975. (No changes
are necessary in the way individuals prepare their
1974 tax returns.)
2. $4 billion cut for corporations, accomplished by
a temporary increase in the investment tax credit
from 7% to 12% on 1975 investments. For utilities,
1975 investment tax credits would be increased from
4% to 12%. (The 12% increase would remain through
1976 and 1977 for electrical utility projects other
than those fired by oil or natural gas.)
B. To begin bringing Federal spending and budget deficits
under control, the President:
1. Announced a moratorium on new spending programs
other than for energy and said that he would not
hesitate to veto new spending programs adopted by
the Congress.
4
2. Proposed to the Congress selected budget reductions
and a 5% ceiling on Federal employee pay increases
for 1975 as well as on automatic cost of living
increases for Government and military retirement
pay and Social Security. Total savings from these
budget proposals would amount to $17 billion in
FY 1976
C. To reduce sharply the growth in U.S. vulnerability to
another foreign oil embargo and halt the growth in
outflow of U.S. dollars (and jobs), the President
established goals of reducing oil imports by 1 million
barrels per day by the end of 1975 and 2 million
barrels of oil by 1977. He announced actions and
proposals to:
1. Encourage energy conservation, including:
a. Import Fees. By Presidential order, import
fees on crude oil and petroleum products will
be increased over current levels by $1 per
barrel effective February 1, 1975; an additional
$1 effective March 1; and another $1 effective
April 1, for a total increase of $3 per barrel.
To ease the impact on regions heavily dependent
on imported petroleum products, such as New
England and other Northeast States, the
President's program provides for a rebate on
these products, SO that the effective increase
in import fees on petroleum products will be
60¢ on March 1, 1975, and $1.20 on April 1,
with no increase scheduled for February.
b. Excise Tax and Import Fee on Oil. Congress is
asked to establish an excise tax of $2 per
barrel on domestic crude oil and an import
fee on crude oil and petroleum products. (When
this becomes effective, it would replace the
new Presidentially established import fees.)
C. Excise Tax on Natural Gas. Congress is asked
to establish an excise tax of 37¢ per thousand
cubic feet on natural gas -- which is compar-
able to the $2 per barrel tax on petroleum.
d. Public Education. Information for the public
on energy conservation methods and benefits
will be increased.
5
2. Encourage domestic energy production, including:
a. New natural gas deregulation: Congress is
asked to remove Federal price regulation from
new natural gas supplies to provide the incentive
for increased production and more efficient uses.
b. Crude oil price decontrol. Steps will be taken
to remove price controls on domestic crude oil
by April 1, 1975 (action is subject to Congres-
sional disapproval).
C. Elk Hills Naval Petroleum Reserve. Congress is
asked to authorize production of oil from the
Elk Hills Naval Petroleum Reserve (NPR #1) in
California, expected to reach 160,000 barrels per
day early in 1975, increasing to 300,000 barrels
per day by 1977.
d. Conversion to the use of domestic coal. Congress
is asked to amend the Clean Air Act to permit a
vigorous program to convert power plants and
other major users from oil to coal, reducing the
need for oil by 100,000 barrels per day in 1975
and 300,000 in 1977.
3. Recapture windfall profits. Congress is again asked
to place a windfall profits tax on oil companies.
D. To offset the impact of higher energy costs, particularly
for low and middle income people, and to restore pur-
chasing power and growth in jobs and production. The
President asked the Congress to approve permanent tax
reductions beginning in 1975. New energy conservation
taxes and import fees would raise $30 billion annually
in Federal revenues:
Oil excise taxes
- $6.0 billion
Natural gas excise tax
- $8.5 billion
Import fee increases
- $3.5 billion
Windfall profits tax
- $12.0 billion
This $30 billion will be returned immediately to the
economy as follows:
1. Individual income tax cuts of $16.5 billion
beginning with 1975. Congress is asked to
approve a cut in income tax for individuals
of $16.5 billion annually, beginning with
6
1975 tax rates. This is in addition to the one time
$12 billion rebate in 1974 taxes for individuals.
Reductions in taxes will occur for all
Americans but with primary emphasis on low-
and middle-income taxpayers. Changes in
withholding would go into effect on June 1,
1975, and 1975 adjustments would be made
so that a full 12 month reduction would be
accomplished in 7 months from June through
December. Tax rate reductions for 1975 and
future years would be accomplished through
an increase in the low income allowance and
reduced tax rates at all income levels.
2. Payments of $2 billion to non-taxpayers. Congress
is asked to approve a distribution of $2 billion
to non-taxpayers in the form of $80 payments each
year for each adult (over 18 years of age) starting
in the summer of 1975. Otherwise, such individuals
would not receive any compensation for higher energy
costs.
3. Tax incentive of $0.5 billion for energy conservation.
Congress is asked to approve an energy conservation
tax incentive of $0.5 billion in the form of a 15%
tax credit applied to the first $1,000 of expendi-
tures ($150 maximum over 3 years) for certain energy
conservation improvements in homes, such as storm
windows and insulation.
4. Corporate tax cut of $6 billion. Congress is asked
to approve a $6 billion tax reduction for corporations
by cutting 1975 and future year tax rates from 48%
to 42%.
5. Payments of $2 billion to State and local govern-
ments. Congress is asked to approve a $2 billion
increase in general revenue sharing payments to
State and local governments to offset their higher
energy costs.
6. $3 billion Federal cost offset. $3 billion of the
energy conservation tax revenue would offset higher
costs of energy purchased directly by the Federal
Government for its use.
E. To achieve the capability for energy independence by
1985, the President announced the following actions
and proposals to increase domestic energy production
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.
more
(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
- 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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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 $1.30 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 34(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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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.
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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
refits tax liability.
(b) The windfall profits tax rates will be
applied to prices per barrel in excess of
applicable adjusted base prices as follows:
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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.
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17
II. 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
present $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"
BE $5,600 for a family of 4. In addition, the
tax rates applicable to various brackets of in-
come will be reduced. The aggregate effects of
these changes are as Follows:
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18
(1975 Levels)
($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
4,337
151
3.0
40,000
7,958
7,828
130
1.6
I/
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;
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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
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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
THE PRESIDENT'S 1975
STATE OF THE UNION MESSAGE
including
OF
THE
ECONOMY
and
THE OF Visa PLURIBUS UNUM STATES LINITED
ENERGY
FORD OF GERALD LIURARY
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
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.
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2
3
This year's Federal deficit will be about $30 billion;
This cash rebate to individuals amounts to 12 percent
next year's probably $45 billion. The national debt will
of 1974 tax payments a total cut of $12 billion, with a
rise to over $600 billion.
maximum of $1,000 per return.
Our plant capacity and productivity are not increasing
I call today on the Congress to act by April If you
fast enough. We depend on others for essential energy.
do, the Treasury can send the first check for half the rebate
in May and the second by September.
Some people question their government's ability to make
the hard decisions and stick with them. They expect Washington
The other one-fourth of the cut, about $4 billion, will
politics as usual.
go to businesses, including farms, to promote expansion and
create more jobs. The one-year reduction for businesses
Yet, what President Truman said on January 5, 1949, is
would be in the form of a liberalized investment tax credit
even more true in 1975.
increasing the rate to 12 percent for all businesses.
We are better able to meet the peoples' needs.
This tax cut does not include the more fundamental
reforms needed in our tax system. But 1t points us in the
All Americans do have a fairer chance to pursue
right direction -- allowing us as taxpayers rather than the
happiness. Not only are we still the foremost nation in
Government to spend our pay.
pursuit of peace, but today's prospects of attaining it
are infinitely brighter.
Cutting taxes, now, is essential if we are to turn the
economy around. A tax cut offers the best hope of creating
There were 59,000,000 Americans employed at the start
more jobs. Unfortunately, it will increase the size of the
of 1949. Now there are more than 85,000,000 Americans who
budget deficit. Therefore, it is more important than ever
have jobs. In comparable dollars, the average income of
that we take steps to control the growth of Federal
the American family has doubled during the past 26 years.
expenditures.
Now, I want to speak very bluntly. I've got bad news,
Part of our trouble is that we have been self-indulgent.
and I don't expect any applause. The American people want
For decades, we have been voting ever-increasing levels of
action and it will take both the Congress and the President
Government benefits -- and now the bill has come due. We
to give them what they want. Progress and solutions can be
have been adding so many new programs that the size and
achieved. And they will be achieved.
growth of the Federal budget has taken on a life of its
own.
My message today is not intended to address all the
complex needs of America. I will send separate messages
One characteristic of these programs is that their
making specific recommendations for domestic legislation,
cost increases automatically every year because the number
such as General Revenue Sharing and the extension of the
of people eligible for most of these benefits increases
Voting Rights Act.
every year. When these programs are enacted, there is no
dollar amount set. No one knows what they will cost. All
The moment has come to move in a new direction. We
we know is that whatever they cost last year, they will cost
can do this by fashioning a new partnership between the
more next year.
Congress, the White House and the people we both represent.
It is a question of simple arithmetic. Unless we check
Let us mobilize the most powerful and creative
the excessive growth of Federal expenditures or impose on
industrial nation that ever existed on this earth to put
ourselves matching increases in taxes, we will continue to
all our people to work. The emphasis of our economic
run huge inflationary deficits in the Federal budget.
efforts must now shift from inflation to Jobs.
If we project the current built-in momentum of Federal
To bolster business and industry and to create new
spending through the next 15 years, Federal, State, and local
jobs, I propose a one-year tax reduction of $16 billion.
government expenditures could easily comprise half of our
Three-quarters would go to individuals and one-quarter to
gross national product. This compares with less than a third
in 1975.
promote business investment.
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4
5
I am now in the process of preparing the budget sub-
The economic disruption we and others are experiencing
missions for fiscal year 1976. In that budget, I will
stems in part from the fact that the world price of petroleum
propose legislation to restrain the growth of a number of
has quadrupled in the last year. But we cannot put all of
existing programs. I have also concluded that no new
the blame on the oil-exporting nations. We in the
spending programs can be initiated this year, except those
United States are not blameless. Our growing dependence
for. energy. Further, I will not hesitate to veto any new
upon foreign sources has been adding to our vulnerability
spending programs adopted by the Congress.
for years and we did nothing to prepare ourselves for an
event such as the embargo of 1973.
As an additional step toward putting the Federal
government's house in order, I recommend a five percent
During the 1960s, this country had a surplus capacity
limit. on Federal pay increases in 1975. In all Government
of crude oil, which we were able to make available to our
programs tied to the; consumer price index. -- including
trading partners whenever there was a disruption of supply.
social security, civil service and military retirement
This surplus capacity enabled us to influence both supplies
pay, and food stamps -- I also propose a one-year maximum
and prices of crude oil throughout the world. Our excess
increase of 5 percent.
capacity neutralized any effort at establishing an effective
cartel, and thus the rest of the world was assured of
None of these recommended ceiling limitations, over
adequate supplies of oil at reasonable prices.
which the Congress has final authority, are easy to propose,
because in most cases they involve anticipated payments to
In the 1960s, our surplus capacity vanished and, as a
many deserving people. Nonetheless, it must be done. I
consequence, the latent power of the oil cartel could emerge
must emphasize that I am not asking you to eliminate,
in full force. Europe and Japan, both heavily dependent on
reduce or freeze these payments. I am merely recommending
imported 011, now struggle to keep their economies in
that we slow down the rate at which these payments increase
balance. Even the United States, which is far more self-
and these programs grow.
sufficient than most other industrial countries, has been
put under serious pressure.
Only a reduction in the growth in spending can keep
Federal borrowing down and reduce the damage to the private
I am proposing a program which will begin to restore
sector from high interest rates. Only a reduction in
our country's surplus capacity in total energy. In this
spending can make it possible for the Federal Reserve
way, we will be able to assure ourselves reliable and
System to avoid an inflationary growth in the money supply
adequate energy and help foster a new world energy stability
and thus restore balance to our economy. A major reduction
for other major consuming nations.
in the growth of Federal spending can help to dispel the
uncertainty that so many feel about our economy, and put
But this Nation and, in fact, the world must face the
us on the way to curing our economic 1lls.
prospect of energy difficulties between now and 1985. This
program will impose burdens on all of us with the aim of
If we do not act to slow down the rate of increase in
reducing our consumption of energy and increasing pro-
Federal spending, the United States Treasury will be legally
duction. Great attention has been paid to considerations
obligated to spend more than $360 billion in Fiscal Year
of fairness and I can assure you that the burdens will not
1976 -- even if no new programs are enacted. These are
fall more harshly on those less able to bear them.
not matters of conjecture or prediction, but again of simple
arithmetic. The size of these numbers and their implications
I am recommending a plan to make us invulnerable to
for our everyday life and the health of our economic system
cut-offs of foreign oil. It will require sacrifices.
are shocking.
But it will work.
I submitted to the last Congress a list of budget
I have set the following national energy goals to
deferrals and recisions. There will be more cuts recom-
assure that our future is as secure and productive as
mended in the budget I will submit. Even so, the level
our past:
of outlays for fiscal year 1976 is still much too high.
Not only is it too high for this year but the decisions
-- First, we must reduce oil imports by 1 million
we make now inevitably have a major and growing impact on
barrels per day by the end of this year and by
expenditure levels in future years. This is a fundamental
2 million barrels per day by the end of 1977.
issue we must jointly solve.
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6
7
Second, we must end vulnerability to economic
The sooner Congress acts, the more effective the oil
disruption by foreign suppliers by 1985.
conservation program will be and the quicker the Federal
revenues can be returned to our people.
-- Third, we must develop our energy technology
and resources so that the United States has
I am prepared to use Presidential authority to limit
the ability to supply a significant share of
imports, as necessary, to assure the success of this program.
the energy needs of the Free World by the end
of this century.
I want you to know that before deciding on my energy
conservation program, I considered rationing and higher
To attain these objectives, we need immediate action
gasoline taxes as alternatives. Neither would achieve
to cut imports. Unfortunately, in the short-term there
the desired results and both would produce unacceptable
are only a limited number of actions which can increase
inequities.
domestic supply. I will press for all of them.
A massive program must be initiated to increase energy
I urge quick action on legislation to allow commercial
supply, cut demand and provide new standby emergency
production at the Elk Hills, California, Naval Petroleum
programs to achieve the independence we want by 1985.
Reserve. In order that we make greater use of domestic coal
The largest part of increased oil production must come
resources, I am submitting amendments to the Energy Supply
from new frontier areas on the Outer Continental Shelf
and Environmental Coordination Act which will greatly
and from the Naval Petroleum Reserve No. 4 in Alaska. It
increase the number of power plants that can be promptly
is the intention of this Administration to rove aheed with
converted to coal.
exploration, leasing and production on those frontier
areas of the Outer Continental Shelf where the environ-
Voluntary conservation continues to be essential, but
mental risks are acceptable.
tougher programs are also needed -- and needed now. There-
fore, I am using Presidential powers to raise the fee on
Use of our most abundant domestic resource -- coal --
all imported crude oil and petroleum products. Crude oil
is severely limited. We must strike a reasonable compromise
fee levels will be increased $1 per barrel on February 1,
on environmental concerns with coal. I am submitting Clean
by $2 per barrel on March 1 and by $3 per barrel on April 1.
Air Act amendments which will allow greater coal use with-
I will take action to reduce undue hardship on any geo-
out sacrificing our clean air goals.
graphical region. The foregoing are interim administrative
actions. They will be rescinded when the necessary
I vetoed the strip mining legislation passed by the last
legislation is enacted.
Congress. With appropriate changes, I will sign a revised
version into law.
To that end, I am requesting the Congress to act within
90 days on a more comprehensive energy tax program. It
I am proposing a number of actions to energize our
includes:
nuclear power program. I will submit legislation to
expedite nuclear licensing and the rápid selection of sites.
-- Excise taxes and import fees totalling $2 per
barrel on product imports and on all crude oil.
In recent months, utilities have cancelled or postponed
over 60 percent of planned nuclear expansion and 30 percent
-- Deregulation of new natural gas and enactment of
of planned additions to non-nuclear capacity. Financing
a natural gas excise tax.
problems for that industry are growing worse. I am there-
fore recommending that the one year investment tax credit
-- Enactment of a windfall profits tax by April 1
of 12 percent be extended an additional two years to
to ensure that oil producers do not profit
specifically speed the construction of power plants that
unduly. At the same time I plan to take
do not use natural gas or oil. I am also submitting
Presidential initiative to decontrol the price
proposals for selective changes in State utility commission
of domestic crude oil on April 1.
regulations.
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8
9
To provide the critical stability for our domestic
-- 20 major new synthetic fuel plants,
I will request legislation to authorize and require tariffs,
energy production in the face of world price uncertainty,
-- the drilling of many thousands of new oil wells,
import quotas or price floors to protect our energy prices
at levels which will achieve energy independence.
-- the insulation of 18 million homes,
Increasing energy supplies is not enough. We must also
-- and construction of millions of new automobiles,
take additional steps to cut long-term consumption. I
trucks and buses that use much less fuel.
therefore propose:
We can do it. In another crisis the one in 1942 --
-- Legislation to make thermal efficiency standards
President Franklin D. Roosevelt said this country would
mandatory for all new buildings in the United States.
build 60,000 aircraft. By 1943, production had reached
These standards would be set after appropriate
125,000 airplanes annually.
consultation with architects, builders and labor.
If the Congress and the American people will work with
-- A new tax credit of up to $150 for those home
me to attain these targets, they will be achieved and
owners who install insulation equipment.
surpassed.
-- The establishment of an energy conservation
From adversity, let us seize opportunity. Revenues of
program to help low income families purchase
some $30 billion from higher energy taxes designed to.
insulation supplies.
encourage conservation must be refunded to the American
people in a manner which corrects distortions in our tax
-- Legislation to modify and defer automotive
system wrought by inflation.
pollution standards for 5 years to enable us
to improve new automobile gas mileage 40 percent
People have been pushed into higher tax brackets by
by 1980.
inflation with a consequent reduction in their actual
spending power. Business taxes are similarly distorted
These proposals and actions, cumulatively, can reduce
because inflation exaggerates reported profits resulting
our dependence on foreign energy supplies to 3-5 million
in excessive taxes.
barrels per day by 1985. To make the United States
invulnerable to foreign disruption, I propose standby
Accordingly, I propose that future individual income
emergency legislation and a strategic storage program of
taxes be reduced by $16.5 billion. This will be done by
1 billion barrels of 011 for domestic needs and 300 million
raising the low income allowance and reducing tax rates.
This continuing tax cut will primarily benefit lower and
barrels for defense purposes.
middle income taxpayers.
I will ask for the funds needed for energy research
and development activities. I have established a goal of
For example, a typical family of four with a gross
1 million barrels of synthetic fuels and shale oil production
income of $5,600 now pays $185 in Federal income taxes.
per day by 1985 together with an incentive program to achieve
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
it.
Federal taxes. My plan reduces that by $300. Families
I believe in America's capabilities. Within the next'
grossing $20,000 would receive a reduction of $210.
ten years, my program envisions:
Those with the very lowest incomes, who can least
200 major. nuclear power plants,
afford higher costs, must also be compensated. I propose
--
a payment of $80 to every person 18 years of age and
--
250 major new coal mines,
older in that category.
-- 150 major coal-fired power plants,
State and local governments will receive $2 billion
in additional revenue sharing to offset their increased
-- 30 major new oil refineries,
energy costs.
more
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(OVER)
10
11
To offset inflationary distortions and to generate
A resurgent American economy would do more to restore
more economic activity, the corporate tax rate will be
the confidence of the world in its own future than anything
reduced from 48 percent. to 42 percent.
else we can do. The program that this Congress will pass
can demonstrate to the world that we have started to put
Now, let me turn to the international dimension of the
our own house in order. It can show that this Nation is
present crisis. At no time in our peacetime history has
able and willing to help other nations meet the common
the state of the Nation depended more heavily on the state
challenge. It can demonstrate that the United States
of the world. And seldom if ever has the state of the
will fulfill its responsibility as a leader among nations.
world depended more heavily on the state of our Nation.
At stake is the future of the industrialized democracies,
The economic distress is global. We will not solve
which have perceived their destiny in common and sustained
it at home unless we help to remedy the profound economic
it in common for 30 years.
dislocation abroad. World trade and monentary structure
provides markets, energy, food and vital raw materials --
The developing nations are also at a turning point.
for all nations. This international system is now in
The poorest nations see their hopes of feeding their hungry
jeopardy.
and developing their societies shattered by the economic
crisis. The long-term economic future for the producers
This Nation can be proud of significant achievements
of raw materials also depends on cooperative solutions.
in recent years in solving problems and crises. The Berlin
Agreement, the SALT agreements, our new relationship with
Our relations with the Communist countries are a basic
China, the unprecedented efforts in the Middle East -- are
factor of the world environment. We must seek to build a
immensely encouraging. But the world is not free from
long-term basis for coexistence. We will stand by our
crisis. In a world of 150 nations, where nuclear technology
principles and our interests; we will act firmly when
is proliferating and regional conflicts continue, inter-
challenged. The kind of world we want depends on a broad
national security cannot be taken for granted.
policy of creating mutual incentives for restraint and
for cooperation.
So let there be no mistake about it: international
cooperation is a vital fact of our lives today. This is
As we move forward to meet our global challenges and
not. a moment for the American people to turn inward.
opportunities, we must have the tools to do the job.
More than ever befóre, our own well-being dépends on
America's determination and leadership in the world.
Our military forces are strong and ready. This
military strength deters aggression against our allies,
We are a great Nation -- spiritually, politically,
stabilizes our relations with former adversaries and
militarily, diplomatically and economically. America's
protects our homeland. Fully adequate conventional and
commitment to international security has sustained the
strategic forces cost many billions, but these dollars
safety of allies and friends in many areas -- in the
are sound insurance for our safety and a more peaceful
Middle East, in Europe, in Asia. Our turning away would
world.
unleash new instabilities and dangers around the globe
which would, in turn, threaten our own security.
Military strength alone is not sufficient. Effective
diplomacy is also essential in preventing conflict and
At the end of World War II, we turned a similar
building world understanding. The Vladivostok negotiations
challenge into an historic achievement. An old order was
with the Soviet Union represent a major step in moderating
in disarray; political and economic institutions were
strategic arms competition. My recent discussions with
shattered. In that period, this Nation and its partners
leaders of the Atlantic Community, Japan and South Korea
built new institutions, new mechanisms of mutual support
have contributed to our meeting the common challenge.
and cooperation. Today, as then, we face an historic
opportunity. If we act, imaginatively and boldly, as we
But we have serious problems before us that require
acted then, this period will in retrospect be seen as one
cooperation between the President and the Congress. By
of the great creative moments of our history.
the Constitution and tradition, the execution of foreign
policy is the responsibility of the President.
The whole world is watching to see how we respond.
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567-482
12
EMBARGOED FOR RELEASE
JANUARY 15, 1975
UNTIL 1:00 P.M., EST
In recent years, under the stress of the Vietnam War,
legislative restrictions on the President's capability to
EMBARGOED FOR WIRE TRANSMISSION
execute foreign and military decisions have proliferated.
UNTIL 10:00 A.M., EST
As a member of the Congress, I opposed some and approved
others. As President, I welcome the advice and cooperation
Office of the White House Press Secretary
of the House and Senate.
But, if our foreign policy is to be successful we
THE WHITE HOUSE
cannot rigidly restrict in legislațion the ability of the
President to act. The conduct of negotiations is ill
FACT SHEET
suited to such limitations. For my part, I pledge this
Administration will act in the closest consultations with
THE PRESIDENT'S STATE OF THE UNION MESSAGE
the Congress as we face delicate situations and troubled
Page
times throughout the globe.
When I became President only five months ago, I promised
THE PRESIDENT'S ECONOMIC AND TAX PROGRAM
the last Congress a policy of communication, conciliation,
Background
5
compromise and cooperation. I renew that pledge to the new
Current Situation and Near-term Outlook for the Economy
6
members of this Congress.
Major Elements of the President's Economic
and Tax Program
7
To sum up:
I. A $16 Billion Temporary Anti-Recession
Tax Reduction
7
America needs a new direction which I have sought to
II. Energy Conservation Taxes and Fees
7
chart here today -- a change of course which will:
III. Permanent Tax Reduction Made Possible by Energy
Taxes and Fees
7
-- put the unemployed back to work;
IV. One Year Moratorium on New Federal
Spending Programs
8
-- increase real income and production;
V. Budget Reductions
8
-- restrain the growth of government spending;
Specific Proposals Announced by the President
9
I. Temporary, Anti-Recession Tax Cut
--- achieve energy independence; and
of $16 Billion
9
A. Tax Cut for Individuals of $12 Billion
9
-- advance the cause of world understanding.
B. Temporary Increase in Investment Tax
Credit of $4 Billion
10
We have the ability. We have the know-how. In part-
II. Energy Conservation Taxes and Fees
12
nership with the American people, we will achieve these
A. Administrative Actions
12
objectives.
1. Oil Import Fee
12
2. Crude Oil Price Decontrol
13
As our 200th anniversary approaches, we owe it to
3. Control of Imports
13
ourselves, and to posterity, to rebuild our political and
B. Taxes Proposed to the Congress
14
economic strength. Let us make America, once again, and
1. Petroleum Excise Tax and Import Fee
14
for centuries more to come, what it has so long been -- a
2. Natural Gas Excise Tax
14
stronghold and beacon-light of liberty for the world.
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
GERALD R. FORD
B. Residential Conservation Tax Credit
of $.5 Billion
18
C. Payments to Nontaxpayers of $2 Billion
19
D. Tax Reductions for Corporations
THE WHITE HOUSE,
of $6 Billion
20
January 15, 1975.
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# # # #
3
2
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20
II. Actions Announced by the President
IV. Moratorium on New Federal Spending Programs
20
to Meet Mid-term (1975-1985) Goals
36
V. Budget Reductions
A. Actions to Increase Domestic Energy Supply
36
1. Naval Petroleum Reserve Number 4
Summary of the Budget Impact of the New Taxes,
23
(Legislative)
36
Fees and Tax Cuts
2. Outer Continental Shelf (OCS)
Inflation Impact of the Taxes, Fees and Tax Cuts
26
Leasing (Administrative)
37
3. Reducing Domestic Energy Price
Uncertainty (Legislative)
37
Presidential Proposals of October 8, 1974, being
27
4. Clean Air Act Amendments (Legislative)
37
Resubmitted for Congressional Action
5. Surface Mining (Legislative)
38
6. Coal Leasing (Administrative)
38
7. Electric Utilities
39
THE PRESIDENT'S ENERGY PROGRAM
a. Uniform Investment Tax Credit
29
(Legislative)
39
Background U.S. Energy Outlook -- Near-term, Mid-term
b. Higher Investment Tax Credit
30
(Legislative)
39
and Long-term
C. Preferred Stock Dividend
National Energy Policy Goals and Principles
Deductions (Legislative)
39
31
d. Mandated Reforms of State Utility
Announced by the President
I. Near-term (1975-1977)
31
Commission Processes (Legislative)
39
31
e. Energy Resources Council Study
II. Mid-term (1975-1985)
32
(Administrative)
39
III. Long-term (Beyond 1985)
32
8. Nuclear Power
40
IV.
Principles
a. Expedited Licensing and Siting
Actions Announced Today by the President
33
(Legislative)
40
I. Actions Announced by the President to Meet
b. 1976 Budget Increase for Safety,
Near-term (1975-1977) Goals
33
Safeguards and Waste Management
33
(Legislative)
40
A. Administrative Actions
33
9. Energy Facilities Siting (Legislative)
40
1. Import Fee on Petroleum
2. Backup Import Control Program
34
B. Action to Conserve Energy
40
3. Crude Oil Price Decontrol
34
1. Auto Gasoline Mileage Increases
(Administrative)
40
4. Increase Public Education on
34
Energy Conservation
2. Building Thermal Standards
34
(Legislative)
41
B. Legislative Proposals
3. Residential Conservation Tax Credit
1. Comprehensive Energy Tax and
34
(Legislative)
41
Decontrol Program
a. Windfall Profits Tax on Crude Oil
34
4. Low-Income Energy Conservation
b. Petroleum Excise Tax and Import Fee
34
Program (Legislative)
42
c. New Natural Gas Deregulation
35
5. Appliance Efficiency Standards
d. Natural Gas Excise Tax
35
(Administrative)
42
2. Elk Hills Naval Petroleum Reserve
35
6. Appliance and Auto Efficiency
3. Conversion to the Use of Domestic Coal
35
Labelling Act (Legislative)
42
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4
5
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
The President's Economic and Tax Program
d. Materials Allocation
43
e. Emergency Domestic Oil
Production Increase
43
The President's State of the Union Address outlined the
f. Petroleum Inventory Regulation
43
nation's current economic situation and outlook, and his
III, Actions Announced by the President to Meet
economic and tax program which are designed to wage a
Long-term (Beyond 1985) Goals
43
simultaneous three-front campaign against recession, in-
A. Synthetic Fuels Program (Administrative)
44
flation and energy dependence.
B. Energy Research and Development Program
44
C. Energy Research and Development
BACKGROUND
Administration (ERDA)
44
The U.S. economy is faced with the closely linked problems
Table Summarizing Impacts of Near- and Mid-term
of inflation and recession. During 1974, the economy
Actions on Petroleum Consumption and Imports
45
experienced the highest rate of inflation since World
War II. Late in 1974, when a recession set in, unemploy-
ment rose sharply to over 7 percent, the highest level
INTERNATIONAL ENERGY POLICY AND FINANCING ARRANGEMENTS
in 13 years.
Background
46
Accelerated inflation had its roots in the policies of the
past and several recent developments not subject to U.S.
U.S. Position
46
control. Specifically:
Actions Taken by Oil Consuming Nations
46
--
Excessive Federal spending and lending for over
a decade and too much money and credit growth.
Other U.S. Actions and Proposals
47
:
Unusually poor harvests contributed heavily to
world-wide food shortages and escalating food
prices.
World petroleur: 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.
more
-- 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
7
An economic boom occurred simultaneously in
MAJOR ELEMENTS OF THE PRESIDENT'S ECONOMIC AND TAX PROGRAM
the industrialized nations of the world.
I.
There were two international devaluations of the
A $16 Billion Temporary, Anti-Recession Tax
Reduction. This major reduction in taxes proposed
dollar.
for individuals and businesses is designed to
Inflation contributed strongly to the forces of recession:
restore consumer confidence and promote a recovery
of production and employment. The recession is
The real purchasing power of workers' paychecks
deeper and more widespread than expected earlier,
but the tax reduction -- together with the easing
was reduced.
of monetary conditions that has already taken
Inflation also reduced consumer confidence,
place -- will support a healthy economic recovery.
contributing to the most severe slump in
The tax reduction must be temporary to avoid
consumer purchasing since World War II.
excessive stimulus resulting in a new price
explosion and congested capital markets. The
Inflation forced interest rates to very high levels,
temporary nature of the reduction is consistent
draining funds out of financial institutions that
with the long-term economic goals of achieving
supply most mortgage loans and thus sharply reducing
and maintaining reasonable price stability and
raising the share of national output devoted to
construction of homes.
saving and capital formation.
Federal Government spending and lending programs,
accounting for over half the funds raised in
II. Energy Taxes and Fees. Energy excise taxes and
capital markets, reduced the amount of money
fees on petroleum and natural gas will reduce use of
available for capital investments needed to raise
these energy sources and reduce the nation's need
productivity and increase living standards.
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
CURRENT SITUATION AND NEAR-TERM OUTLOOK
would recover windfall profits resulting from
The economy is now in a full-fledged recession and unemploy--
crude oil decontrol. Energy taxes and fees are
ment will rise further. Inflation continues at a rapid pace will
expected to raise $30 billion in new Federal
revenues on an annual basis.
and the need to take immediate steps to conserve energy
further complicate the problem initially.
III. Permanent Tax Reduction Made Possible By Energy
There are no instant cures. A careful and balanced policy
Taxes and Fees. The $30 billion annual revenue
There is, however, no prospect of a long and deep economic
approach is required. It will take time to yield full results.
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
downturn on the scale of the 1930's.
cut, a cash payment for non-taxpayers, and direct
distribution to governmental units. Tax reductions
more
are designed to go mainly to low-and middle-income
taxpayers.
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(OVER)
8
9
IV. One Year Moratorium on New Federal Spending Programs.
The moratorium on new spending programs proposed by
SPECIFIC PROPOSALS ANNOUNCED BY THE PRESIDENT
the President will permit the Federal Government to
move toward long-term budget responsibility and to
I.
A Temporary, Anti-Recession Tax Cut of $16
avoid refueling inflation when the economy begins
Billion. The President proposed a temporary,
tax reduction of approximately $16 billion to
rising again.
provide prompt stimulus to consumer spending
V.
Budget Reductions. The President will propose
and business investment. The tax cut is
significant spending reductions in his Fiscal
divided 75 percent to individuals and 25 percent
Year 1976 Budget. The reductions total more than
to corporations, which is approximately the
$17 billion, including $7.8 billion savings from
ratio that individual income taxes bear to
reductions proposed last year and $6.1 billion
corporate income taxes. The cuts would be:
from the 5 percent ceiling to be proposed on
Federal employee pay increases and on Federal
A.
A Tax Reduction for Individuals of $12 Billion.
benefit programs that rise automatically with
1. Individuals will receive a cash refund
the Consumer Price Index.
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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FORD
(OVER)
GERALD
LIBRARY
11
10
5. The effect of the tax refund can be
illustrated for a family of four as follows:
3. With respect to utilities, it includes a
temporary increase in the amount of credit
Proposed
Percent
Adjusted
Present
which may be used to offset income tax.
Gross Income
Tax
Refund
Saving
Under current law, not more than 50 percent
of the income tax liability for the year may
$ 5,000
$
98
$
12
-12.0%
be offset by the investment credit. Since
402
48
-12.0%
many utilities have credits they have been
7,000
10,000
867
104
-12.0%
unable to use because of this limitation,
12,500
1,261
151
-12.0%
under this proposal utilities will be permit-
204
-12.0%
15,000
1,699
ted to use the credit to offset up to 75 per--
20,000
2,660
319
-12.0%
cent of their tax liability for 1975,
-12.0%
70 percent for 1976, 65 percent for 1977 and
40,000
7,958
955
50,000
11,465
1,000
- 8.7%
so on, until 1980, when they will in five
60,000
15,460
1,000
.. 6.5%
annual steps have returned to the 50 percent
100,000
33,340
1,000
-- 3.0%
limitation applicable to industry generally.
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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(OVER)
12
13
4. The 12 percent credit will apply to
(b) FEA's "Old Oil Entitlements" program will
property placed in service during 1975 and
be utilized to spread price increases on crude
to property ordered during 1975 if placed
among all refiners, and to lessen dispropor-
in service before the end of 1976. The
tionate regional effects, such as New England,
credit will also be available to the extent
or in any specific industries or areas of
of construction, reconstruction or erection
human need where oil is essential.
of property by or for a taxpayer during
1975, without regard to the date ultimately
(c) As of February 1975, product imports
placed in service. Similar rules will apply
will cease to be covered by FEA's "Old Oil
to investment in electrical power plants other
Entitlements" program. In order to overcome
than oil-or gas-fired facilities, for which
any severe regional impacts that could be
the 12 percent credit will continue through
caused by large fees in import dependent
1977.
areas, imported products will receive a fee
rebate corresponding to the benefit which
would have been obtained under that program.
II. Energy Conservation Taxes and Fees. Energy taxes
The rebate should be approximately $1.00 in
and fees, in conjunction with domestic crude oil
February, $1.40 in March, and $1.80 per
price decontrol and the proposed windfall profits
barrel thereafter.
tax, would raise about $30 billion on an annual
basis. The fees and taxes and related actions
(d) The import fee program will reduce
(discussed more fully in Part Two of this Fact
imports by an estimated 500,000 barrels
Sheet) include:
per day and generate about $400 million
per month in revenues by April.
A.
Administrative Actions.
2. Crude Oil Price Decontrol -- To stimulate
1. Import Fee -- The President is acting
domestic production and further cut demand,
immediately within existing authorities to
steps will be taken to remove price controls
increase import fees on crude oil and
on domestic crude oil by April 1, 1975,
petroleum products. These new import fees
subject to congressional disapproval as
will be modified upon passage of the
provided by 34(8) of the Emergency Petroleum
President's legislative package.
Allocation Act of 1973.
(a) Import fees on crude oil and petroleum
3. Control of Imports -- The energy conservation
products will be increased by $1 effective
measures to be imposed administratively out-
February 1, 1975; an additional $1 effective
lined above, the energy conservation taxes
March 1; and another $1 effective April 1,
outlined below and other energy conservation
for a total increase of $3.00 per barrel.
measures covered in Part Two below, will be
Currently existing fees will also remain
supplemented by the use of Presidential power
in effect.
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
15
B.
Taxes Proposed to the Congress. The President
3. Windfall Profits Tax -- To ensure that
asked the Congress to pass within 90 days a
the end of controls on crude oil prices
does not result in one sector of the
comprehensive energy conservation tax program
which will raise an estimated $30 billion in
economy benefitting unfairly at the expense
revenues on an annual basis. The taxes proposed
of other sectors, a windfall profits tax
will be levied on the profits realized by
are:
producers of domestic oil. This tax is
1. Petroleum Excise Tax and Import Fee -- An
intended to recapture excessive profits
excise tax on all domestic crude oil of $2 per
which would otherwise be realized by
barrel and a fee on imported crude oil and
producers as a result of the rise in
product imports of $2 per barrel.
international oil prices. This tax does
not itself cause price increases, but simply
2. Natural Gas Excise Tax -- An excise tax
recaptures the profits from price increases
on natural gas of 37c per thousand cubic feet
otherwise induced. It will, together with
(mcf), the equivalent on a Btu basis to the
the income tax on such profits, produce
$2 per barrel petroleum excise tax and import
revenues of approximately $12 billion.
In aggregate, the windfall profits tax is
fee.
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
prodits tax liability.
(b) The windfall profits tax rates will be
applied to prices per barrel in excess of
applicable adjusted base prices as follows:
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567-462
17
16
III. Permanent Tax Reductions and Payments to Non-
Portion of price per
Amount of tax
Taxpayers Made Possible by Energy Conservation
barrel in excess of
Taxes.
base and subject to tax
15% of amount
Of the $30 billion in revenue raised annually by
Less than $0.20
within bracket
the proposed conservation taxes outlined above,
$0.20, under $0.50
$0.03 plus 30% of
about $5 billion is paid by governments through
amount within bracket
the higher costs of energy in their purchases.
$0.50, under $1.20
$0.12 plus 60% of
This $5 billion includes:
amount within bracket
$0.54 plus 80% of
$3 billion by the Federal government.
$1.20, under $3.00
amount within bracket
$2 billion by state and local governments.
$3.00 and over
$1.98 plus 90% of
amount within bracket
The President is proposing to the Congress that
$2 billion of the revenues be paid to State and
(c) The windfall profits tax does not include
local governments, pursuant to the distribution
a "plowback" provision, nor does it contain
formulas applicable to general revenue sharing.
The other $25 billion will be returned to the
exemptions for classes of production or
producers. It does, however, include the
economy mostly in the form of tax cuts. As in
limitation that the amount subject to tax may
the case of the temporary tax reduction, this
not exceed 75 percent of the net income from
permanent change will be divided between indi-
the barrel of crude 011. The tax will be
viduals and corporations on a 75-25 percent
basis, about $19 billion for individuals and
retroactive to January 1, 1975.
about $6 billion for corporations. Specifically,
this would include:
(d) The windfall profits tax reduces the
base for the depletion allowance.
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
present $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 $5,600 for a family of 4. In addition, the
tax rates applicable to various brackets of in-
come will be reduced. The aggregate effects of
these changes are as follows:
more
more
(OVER)
19
18
1. A 15 percent tax credit retroactive
(1975 Levels)
to January 1, 1975 for the cost of certain
($billions)
improvements in thermal efficiency in
residences would be provided. Tax credits
Adjusted
:
Income Tax
:
Amount of
:
Percentage
Gross Income
:
Paid Under
Income Tax :
Reduction in
would apply to the first $1,000 of
:
expenditures and can be claimed during
Class
:
Present Law
:
Reduction
:
Income Tax
the next three years.
is
($000)
2. At least 18 million homes could qualify
0
3
3
- .25
-83.3%
5
1.8
- 1.20
-65.7
for these tax benefits, estimated to total
3 -
about $500 million annually in tax credits.
5 -
7
4.0
- 1.96
-49.0
7 - 10
8.9
- 3.38
-38.0
C.
10 - 15
21.9
-21.6
Payments to Nontaxpayers of $2 billion.
- 4.72
15 - 20
22.8
- 2.70
-11.8
The final component of the $19 billion
distribution to individuals is a distribu-
20 - 50
44.4
- 2.15
- 4.8
13.5
- 0.0
tion of nearly $2 billion to nontaxpayers
50 - 100
- .11
100 and over
13.3
- .03
- 0.2
and certain low-income taxpayers. For this
low-income group, a special distribution of
130.9
-16.50*
-12.6
$80 per adult will be provided, as follows:
Total
1. Adults who would pay no tax ,even without
*Does not include payments to nontaxpayers
the tax reductions in A above, will-receive
$80.
The effect of these tax changes can be illustrated
for a family of 4, as follows:
2. Adults who receive less than $80 in such
Present
Percent
tax reductions will receive approximately the
Adjusted
ilew
Tax
difference.
Gross Income
Tax I/
Tax
Saving
Saving
$ 5,600
$ 185
$
0
$185
100.0%
3. Persons not otherwise filing returns but
402
110
72.6
eligible for these special distributions
7,000
202
10,000
867
518
349
40.3
will make application on simple forms provided
12,500
1,261
961
300
23.8
by the Internal Revenue Service on which they
1,478
221
13.0
would furnish their name, address, social
15,000
1,699
20,000
2,660
2,450
210
7.9
security number, and income.
30,000
4,988
4,837
151
3.0
40,000
7,958
7,828
130
1.6
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.
I/
Calculated assuming Low Income Allowance or
itemized deductions equal to 17 percent of
5. Since most taxpayers will receive their
income, whichever is greater.
1975 income tax reductions in 1975 through
B. Residential Conservation Tax Credit (Discussed
reductions in withholding on wages and
estimated tax payments, the special distribu-
in the Energy Section of this Fact Sheet). The
tion to non-taxpayers and low-income
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, barrels of oil per day by 1985. Under
this legislation:
more
(OVER)
more
20
21
taxpayers will also begin in 1975.
The following summarizes reductions in 1976 spending
It is anticipated that disbursement,
to be included in the upcoming budget:
based on 1974 income can be made in
the summer of 1975.
(Outlays
Tax Reductions for Corporations. The
in billions)
D.
corporate rate will be reduced by 6
Effect of budget reductions
percentage points, effectively lowering
proposed last year (including
the corporate rate from 48 percent to
administrative actions)
$8.9
42 percent for 1975. The resulting
benefit in 1975 is estimated at about
Amounts overturned by the
Congress
-1.1
$6 billion.
Remaining savings
7.8
IV.
Moratorium on New Federal Spending Programs.
The President announced that he would propose
Further reductions to be proposed:
no new Federal spending programs except for
energy. He also indicated that he would not
Ceiling of 5% on Federal pay
hesitate to veto any new spending programs
and programs tied to the
CPI
6.1
passed by the Congress. The need for the
moratorium is demonstrated by preliminary
FY 1976 Budget estimates:
Other actions planned
3.6
Total reductions
17.5
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 $6 billion will
result from the proposed 5% ceiling on Federal
pay increases and on those Federal benefit
programs that rise automatically with the
Consumer Price Index.
more
more
(OVER)
23
22
The following lists those programs to which the
SUMMARY OF THE BUDGET IMPACT OF THE NEW TAXES AND FEES
5% ceiling will apply and shows spending amounts
AND THE TAX CUTS
for them:
The following table summarizes the estimated direct budget
Effect of 5% Ceiling on Pay Increases
impact, on a full-year-effective basis, of the tax and related
and Programs Tied to CPI
changes proposed by the President to deal with the economic
(Fiscal year estimates; Dollars in billions)
and energy situations:
1976 Outlays
Difference
Revenue Raising Measures
Estimated Amounts
1975
l'ithout
With
1975-1976
($ billions)
Programs Affected
Outlays
ceiling
ceiling
(with ceiling)
Oil excise tax and import fee
+ 9 1/2
Natural gas excise tax
+ 8 1/2
Social security
64.5
74.3
71.8
+7.3
Windfall Profits tax
+12
Total
+30
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 $50 million.
The 5% ceiling will take into account increases
that have already occurred since January 1, 1975.
more
Under the plan, after June 30, 1976, adjustments
(OVER)
would be resumed in the same way as before the
establishment of the 5% ceiling. However, no
catchup of the increases lost under the ceiling
would take place.
more
24
25
Estimated Amounts
Revenue Disbursing Measures
($ billions)
--
The tax credit for energy-saving improvements
to existing residences would go into effect
Energy rebates:
as of January 1, 1975.
Income tax cuts, individuals
-16 1/2
Residential tax credit
-
1/2
--
The special distribution to nontaxpayers is
Nontaxpayer distribution
- 2
expected to be paid out in the summer of
Corporate tax cut
- 6
1975.
State and local governments
- 2
Federal government costs
- 3
--- The $2 billion distribution to State and
local governments would be effective with
Subtotal
-30
the second quarter of 1975.
Temporary economic stimulus:
The temporary anti-recession tax cut for
Individual tax refunds
-12
individuals will be paid out in two
Investment credit increase
- 4
installments, in the second and third
quarters.
Subtotal
-16
--
The one-year increase in the investment
Total Revenue Disbursing Measures
46
tax credit becomes. effective retroactively
to January 1, 1975.
The tax and related changes will go into effect at different
times, but all of them during the year 1975:
The timing of the various changes suggests a pattern of
direct budget changes as follows. The timing of the
The energy conservation taxes are proposed
economic stimulus or restraint will depend, as well on
to go into effect April 1.
such factors as the indirect effects of the budget changes,
the timing of the pass-through of higher energy costs to
The increase in import fees would go into
final users, the extent to which the changes are anticipated,
effect
and a variety of monetary and financial developments that
arise out of these changes.
- $1 per barrel February 1.
Timing of Direct Budget Impact
- To $2 per barrel March 1.
($ billions)
- To $3 per barrel, if the energy taxes
have not been enacted, April 1.
Calendar Years
1975
1976
The windfall profits tax on crude oil would
I
II
III
IV
I
II
III
IV
be effective as of January 1, 1975. First
Energy Taxes
+0.2
+4.1
+12.6
+7.6
+7.6
+7.5
+7.5
+7.5
payments of the tax would be made in the
third quarter.
Return of Energy
Revenues to Economy
The permanent tax cuts for individuals and
Tax Reduction
.0
-3.2
-- 9.0
-9.0
-5.6
-7.9
-6.3
-6.4
corporations made possible by the revenues
Nontaxpayers
- 2.0
-2.0
from the energy conservation taxes would be
S&L Gov'ts
.0
-0.5
- 0.5
-0.5
-0.5
-0.5
-0.5
-0.5
effective as of January 1, 1975. The changes
Federal Govt.
.0
.0
-
.0.8
-0.7
-0.8
-0.7
-0.8
-0.7
in withholding rates for individuals are
expected to go into effect on June 1. The
Temporary Tax Cut
.0
-6.1
-17.9
-0.6
-0.8
-0.9
0
0
withholding changes will be adjusted so that
12 months reduction is accomplished in the
Net Effect
+0.2
-5.7
- 7.6
-3.2
-0.1
-2.5
-2.1
-0.1
7 months from June through December.
more
more
(OVER)
26
27
INFLATION IMPACT
help the Nation recover from the current recession --- the
Both major parts of the tax package require inflation
impact would come much too late -- but it would surely do
impact analysis. The excise taxes on crude oil and
much inflationary harm as the economy returns to prosperous
natural gas, combined with the tariff and decontrol of
conditions in the years ahead. Therefore, at the same
prices of both "old" oil and new natural gas, will add
time that taxes are being reduced to support a healthy
to the general price level immediately. The consumer
recovery, policies that would revive inflationary pressures
price index is expected to rise by about two percent
must be avoided after the recovery is underway. The size
when these tax and price increases go into effect.
of currently projected Federal budget deficits precludes
However, this increase has a one-time impact on the
introduction of new spending programs now that would raise
price level that, with exceptions in some areas, should
inflationary pressures later. For this reason, the President
not add materially to inflationary pressures in future
requested that no new spending programs, except as needed
years.
in the energy area, be enacted so that we can regain control
of the budget over the long-run and permit a gradual return
The inflationary impact of the $16 billion anti-recession
to reasonable price stability.
tax cut is more difficult to assess. While some eco--
nomists may argue that a tax cut will add to the rate
PRESIDENTIAL PROPOSALS OF OCTOBER 8, 1974 RESUBMITTED FOR
CONGRESSIONAL ACTION
of inflation during the year ahead, others would contend
that under present economic conditions, with unemploy-
ment high and many factories operating well below
In addition to the comprehensive set of economic and
capacity, the predominant effect of the tax cut will
energy policies discussed in the State of the Union
be to stimulate spending, and that additional spending
Message, the President asked that the new Congress
will have only a slight impact on prices.
pass quickly certain legislative proposals originally
requested in his October 8, 1974, message. Those
Whatever the precise price impact of this $16 billion
proposals would:
tax cut during 1975, the most important fact about it
1.
from the standpoint of inflation is that it is temporary.
Remove restrictions on the production of
With the recession still under way, the rate of inflation
rice, peanuts, and extra-long-staple cotton.
will be coming down -- it will be too high, but never..
2.
theless moving in the right direction. After the economy
Amend P.L. 480 to waive certain restrictions
gets well into recovery, however, too much stimulus would
on shipments of food under that Act to needy
be sure to reverse the slowing of the inflation rate and,
countries for national interest or humanitarian
indeed, start a new acceleration. Thus, the tax stimulus
reasons.
must be temporary rather than permanent.
3. Amend the Antitrust Civil Process Act to strengthen
The President has declared a moratorium on new Federal
the investigation powers of the Antitrust Division
spending programs for this same reason. Budget expen.
of the Department of Justice.
ditures are rising rapidly. this year, in part, because
4.
of programs to aid the unemployed. That: is acceptable
Eliminate the U.S. Withholding tax on foreign
and highly desirable in a recession to relieve the
portfolio investments to encourage such
burden on workers who are affected. It is also
investment.
desirable because spending under those programs
phases out as the economy recovers and unemployment
5.
Allow dividends paid on qualified preferred
falls. The increased Federal spending is only temporary.
stock to be an authorized deduction for de--
termining corporate income taxes to increase
Over the long-term, however, both Federal spending and
incentives for raising needed capital in the
lending have been rising much too fast, a fact that
form of equity rather than debt.
accounts for a substantial part of our current economic
problems. A new burst of expenditure programs cannot
6. Create a National Commission on Regulatory
Reform and take prompt action on other reforms
of regulatory and administrative procedures
more
that will be recommended in the future.
more
(OVER)
567-462
28
29
7.
Strengthen our financial institutions and
provide a new tax incentive for investment
in residential mortgages.
The President's Energy Program
(including energy taxes and fees)
8.
Permit more competition between different
modes of surface transportation (The Surface
The President's State of the Union Address outlined the Nation's
Transportation Act).
energy outlook, set forth national energy policy objectives,
9.
Amend the Employment Act of 1946 to make
and described actions he is taking immediately and indicated
explicit the goal of price stability.
proposals he is asking the Congress to pass.
(Substitute "to promote maximum employ-
ment, maximum production, and stability
BACKGROUND
of the general price level" in place of
the present language, "to promote maximum
Over the past two years, progress has been made in conserving
employment, production and purchasing
energy, expanding energy R&D and improving Federal government
energy organization. Despite such accomplishments, we have
power.")
not succeeded in solving fundamental problems and our Cational
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 Cation'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; 3.8
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
more
production of fertilizer needed to increase food
supplies, and increased demand for alternative
fuels -- primarily imported oil.
more
(OVER)
30
31
-- Coal production is at about the same level as in
the 1930's.
III. Long-Term (Beyond 1985) Emerging energy sources can
play a bigger role in supplying U.S. needs -- the results
Nuclear energy accounts for only 1 percent of total
of the Nation's expanded energy research and development
energy supply and new plants are being delayed,
program. U.S. independence can be maintained. New
postponed or cancelled.
technologies are the most significant opportunity for
other consuming nations with limited domestic resources.
Overall energy consumption is beginning to increase
again.
NATIONAL ENERGY POLICY GOALS AND PRINCIPLES ANNOUNCED BY
U.S. vulnerability to economic and social impact
THE PRESIDENT
from an embargo increases with higher imports and
will continue to do so until we reverse current
I. Near-Term (1975-1977) Reduce oil imports by 1 million
trends, ready standby plans, and increase petroleum
barrels per day by the end of 1975 and 2 million barrels
storage.
by the end of 1977, through immediate actions to
reduce energy demand and increase domestic supply.
Economic impacts of the four-fold increase in OPEC oil
prices include:
(A) With no action, imports would be about 8 million
barrels per day by the end of 1977, more than
---
Heavy outflow of U.S. dollars (and, in effect,
20 percent above the 1973 pre-embargo levels.
jobs) to pay for growing oil imports -- about
$24 billion in 1974 compared to $2.7 billion
(B) Acting to meet the 1977 goal will reduce imports
in 1970.
below 1973 levels, assuring reduced. vulnerability
from an embargo and greater consumer nation
Tremendous balance of payments deficits and
cooperation.
possible economic collapse for those nations
of Europe and Asia that must depend upon
(C) More drastic short-term reductions would have
expensive imported oil as a primary energy
unacceptable economic impacts.
source.
II. Mid-Term (1975-1985) Eliminate vulnerability by
--
Accumulation of billions of dollars of surplus
achieving the capacity for full energy independence
revenues in oil exporting nations -- approxi-
by 1985. This means 1985 imports of no more than
mately $60 billion in 1974 alone.
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.
U.S. ENERGY OUTLOOK
(A) With no action, oil imports by 1985 could be
I. Near--Term (1975-1977) : In the next 2-3 years, there are
reduced to zero at prices of $11 per barrel or
only a few steps that can be taken to increase domestic
more or they could go substantially higher
energy supply particularly due to the long lead time for
if world oil prices are reduced (e.g., at $7
new production. 0il imports will thus continue to rise
per barrel, U.S. consumption could reach
unless demand is curbed.
24 million barrels per day with imports of
above 12 million, or above 50% of the total.)
II. Mid--Term (1975-1985): In the next ten years, there is
greater flexibility. A number of actions can be taken
(B) The U.S. anticipates a reduction in world oil
to increase domestic supply, convert from foreign oil
prices over the next several years. Hence,
to domestic coal and nuclear energy, and reduce demand --
plans and policies must be established to
if the Nation takes tough actions. Vulnerability to an
achieve energy independence even at lower
embargo can be eliminated.
prices -- countering the normal tendency to
increase imports as the price declines.
more
more
(OVER)
33
32
ACTIONS AMNOUNCED TODAY BY THE PRESIDENT
(c) Actions to meet the 1985 goal will hold imports
to no more than 3--5 million barrels per day.
I.
ACTIONS AMHOUNCED BY THE PRESIDENT TO MEET
even at $7 per barrel prices. Protection against
NEAR-TERM GOALS (1975-1977)
an embargo of the remaining imports can then be
To meet the national joals, the President outlined a com-
handled most economically with storage and
prehensive program of legislative proposals to the Congress
standby emergency measures.
which he requested be enacted within 90 days and administra-
tive actions that he will begin implementing immediately.
III. Long-Term (Beyond 1985) : Within this century, the U.S.
The legislative package is more effective and equitable than
should strive to develop technology and energy resources
the administrative program, but the President indicated that
to enable it to supply a significant share of the
the seriousness of the situation demanded imediate action.
These actions will reduce overall energy denand, increase
Free World's energy needs.
domestic production, increase conversion to coal, and reduce
(A) Other consuming nations have insufficient fossil
oil imports. They include:
fuel resources to reach domestic energy
(A) Administrative Actions
self-sufficiency.
1. Import Fee Because of the seriousness
(B) The U.S. can again become a world energy supplier
of the problem and because time is required
and foster world energy price stability -- much
for Congressional action on his legislative
the same as the nation did prior to the 1960's
proposals, the President is acting inmediately
when it was a. major supplier of world oil.
within existing authorities to increase the
import fees on crude oil and netroleurı
products. These new import fees would be
IV. Principles: Actions to achieve the above national
Lodified upon passage of. the President's
energy goals must be based upon the following
legislative package.
principles:
(a) Inport fees on crude oil and petroleuru
Provide energy to the American consumer at the
products under the authority of the Trade Expan-
--
lowest possible cost consistent with our need
sion Act of 1962, as amended, will be increased
for secure energy supplies.
by $1 effective February 1, 1975; an additional
$1 effective March 1; and another $1 effective
Make energy decisions consistent with our overall
April 1, for a total increase of $3.00 per
barrel. Currently existing fees will also
economic goals.
remain in effect.
Balance environmental goals with energy require-
(b) FEA's "Old Oil Entitlements" program
ments.
will be utilized to spread price increases
on crude among all refiners and to lessen
Rely upon the private sector and market forces
disproportionate regional effects, par-
as the most efficient means of achieving the
ticularly in the Northeast.
Nation's goals, but act through the government
where the private sector is unable to achieve
(c) As of February 1975, product imports
will cease to be covered by FEA's "Old Oil
our goals.
Entitlements program. In order to overcome
any severe regional imacts that could be
Seek equity among all our citizens in sharing
caused by large fees in import dependent
of benefits and costs of our energy program.
areas, imported products will receive a
rebate corresponding to the benefit which
Coordinate our energy policies with those of
would have been obtained under that
other consuming nations to promote interde-
program. The rebate should be approximately
$1.00 in February, $1.40 in larch, and $1.30
pendence, as well as independence.
per barrel in April.
more
(d) This import fee. program would reduce
imports by about 500, barrels per day.
In April it would generate about $400 million
per month in revenues.
more
(OVER)
34
35
2.
Backup Import Control Program --- The energy
conservation measures and tax proposals
(c) New Natural Gas Deregulation -- Remove
will be supplemented by the use of Presidential
Federal interstate price regulation on new
power to limit oil imports as necessary to
natural gas to increase domestic production
achieve the near-term goals.
and reduce demand for scarce natural gas
supplies.
3.
Crude Oil Price Decontrol -- To stimulate
production and further cut demand, steps
(a) Natural Gas Excise Tax -- An excise
will be taken to remove price controls
tax on natural gas of 37c per thousand
on domestic crude oil by April 1, 1975,
cubic feet (mcf), which is equivalent
subject to congressional disapproval as
on a Btu basis to the $2 per barrel petroleum
provided by 34(g) of the Emergency
excise tax and fee. This will discourage
Petroleum Allocation Act of 1973.
attempts to switch to natural gas and acts
to reduce natural gas demand curtailments.
4. Increase Public Education on Energy
Since the usual results of gas curtailments
Conservation -- Energy Resources Council
is a switch to oil, this will limit the
will step up its efforts to provide infor-
growth of oil imports.
mation on energy conservation methods and
benefits.
2. Elk Hills Naval Petroleum Reserve. The
President is asking the Congress to permit
(B) Legislative Proposals
production of the Elk Hills Naval Petroleum
Reserve (NPR #1) under Navy control.
1.
Comprehensive Tax and Decontrol Program --
Production could reach 160,000 barrels
The President asked the Congress to pass
per day early in 1975 and 300,000 barrels
within 90 days a comprehensive legislative
per day by 1977. The oil produced would
package which could lead to reduction of
be used to top off Defense Department
oil imports of 900,000 barrels per day
storage tanks, with the remainder sold
by 1975 and 1.6 million barrels by 1977.
at auction or exchanged for refined
Average oil prices would rise about $4.00
petroleum products used by the Department
per barrel of $.10 per gallon. The package
of Defense. Revenues would be used to
which will raise $30 billion in revenues
finance further exploration, development
on an annual basis includes:
and production of the Naval petroleum
reserves and the strategic petroleum
(a) Windfall Profits Tax --- A tax on all
storage.
domestic crude oil to capture the windfall
profits resulting from price decontrol.
3. Conversion to the Use of Domestic Coal.
The tax would take 88% of the windfall
The President is asking the Congress to
profits on crude oil and would phase out
amend the Clean Air Act and the Energy
over several years. The tax would be
Supply and Environmental Coordination
retroactive to January 1, 1975.
Act of 1974 to permit a vigorous program
to make greater use of domestic coal to
(b) Petroleum Excise Tax and Import Fee --
reduce the need for oil. This program
An excise tax on all domestic crude oil
would reduce the need for oil imports
of $2 per barrel and a fee on imported
by 100,000 barrels per day in 1975 and
crude oil and product imports of $2 per
300,000 barrels in 1977. These amend-
barrel. The new, administratively established
ments would extend FEA's authority to
import fee of $3 on crude oil would be reduced
grant prohibition orders from 1975 to
to $2.00 and $1.20 fee on products would be
1977, prohibit powerplants early in the
increased to $2.00 when the tax is enacted.
planning process from burning oil and gas,
extend FEA enforcement authority from 1978
The product import fee would keep the excise
tax from encouraging foreign refining and
to 1985, and make clear that coal burning
the related loss of jobs to the U.S.
FORD
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37
installations that had originally planned
2.
OCS Leasing (Administrative) -- The President
to convert from coal to oil be eligible
reaffirmed his intention to continue an
for compliance date extensions. It would
aggressive Outer Continental Shelf leasing
give EPA authority to extend compliance
policy, including lease sales in the Atlantic,
dates and eliminate restrictive regional
Pacific, and Gulf of Alaska. Decisions on
environmental limitations. A plant could
individual lease sales will await completion
convert as long as its own emissions do
of approoriate environmental studies. In-
not exceed ambient air quality standards.
creased OCS leasing could add domestic pro-
duction of 1.5 million barrels of oil and
additional supplies of natural gas by 1935.
II. ACTIONS AMMOUNCED BY THE PRESIDENT TO MEET MID-TERM
There will be close cooperation with Coastal
GOALS (1975-1905)
states in their planning for possible increased
local development. Funding for environmental
These actions are designed to meet the goal of achieving
studies and assistance to States for planning
the capability for energy independence by 1985. The actions
has been increased in FY 1975.
include measures to increase domestic energy production
(including measures to cope with constraints and strike
3.
Reducing Domestic Energy Price Uncertainty
a balance between environmental and energy objectives),
(Legislative proposal) -- Legislation will
reduce energy demand, and prepare for any future emergency
be requested authorizing and requiring the
resulting from an embargo.
President to use tariffs, import quotas,
import price floors, or other measures to
(A) Supply Actions
achieve domestic energy price levels
necessary to reach self-sufficiency goals.
1.
Naval Petroleum Reserve No. 4 (Legislative
This legislation would enable the President
proposal) -- The President is asking the
to cope with possible large-scale fluctua-
Congress to authorize the exploration, de-
tions in world oil prices.
velopment and production of NPR-4 in Alaska
to provide petroleum for the domestic economy,
4.
Clean Air Act Amendments (Legislative
with 15-20% earmarked for military needs and
proposal) -- In addition to the emendments
strategic storage. The reserves in HPR-4
outlined earlier for short-term goals, the
which are now largely unexplored could pro-
President is asking for other Clean Air
vide at least 2 million barrels of oil per
Act amendments needed for a balance between
day by 1905. Under the legislative proposal:
environmental include: and energy goals. These
(a) The President would be authorized to
explore, develop and produce NPR-4.
(a) Legislative clarification to resolve
problems resulting from court decisions
(b) The Government's share of production
with respect to significant air quality
(approximately 15-20%) would be used to
deterioration in areas already meeting
help finance the strategic storage system
health and welfare standards.
and to help fulfill military petroleum
requirements. Any other receipts go to
(b) Extension of compliance dates through
the United States Treasury as miscellaneous
1985 to implement a new policy regarding
receipts.
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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39
7.
Electric Utilities -- The President is asking
(c) A pause for 5 years (1977-1981 model
the Congress for legislation concerned with
years) for nationwide auto emission standards
utilities. In recent months, 60%
at the current California levels for hydro-
of planned nuclear capacity and 30% of non-
carbons (0.9 grams per mile) and carbon
nuclear capacity additions have been postponed
monoxide (7 grams per mile), and at 1975
or cancelled by electric utilities. Financing
standards (3.1 grams per mile) for oxides
problems are worsening and State utility
of nitrogen (with the exception of California
commission practices have not assured recovery
of costs and adequate earnings. The transition
which has adopted the 2.0 standard). These
from oil and gas-fired plants to coal and nuclear
standards for hydrocarbons (HC) and carbon
has been slowed greatly -- contributing to
monoxide (CO) are more stringent than now
pressure for higher oil imports. Actions
required nationwide for 1976 model year's
involve:
cars. The change from the levels now
required for 1977-1981 model years in the
(a) Uniform Investment Tax Credit (Legislative) --
law will have no significant impact on
an increase in the investment tax credit to
air quality standards, yet they will facilitate
eliminate the gap between utilities and other
attainment of the goal of 40% increase in
industries -- currently a 4% rate applies to
utilities and 7% to others.
auto fuel efficiency by the 1980 model year.
(b) Higher Investment Tax Credit (Legislative) --
(a) EPA will shortly begin comprehensive
An increase in investment tax credit for all
hearings on emission controls and fuel
industry, including utilities, for 1 year --
economy which will provide more detailed
to 12%. The 12% rate would be retained for
data for Congressional consideration.
two additional years for all power plants
except oil and gas-fired facilities.
5.
Surface Mining (Legislative proposal) --
The President is asking the Congress to pass
(c) Preferred Stock Dividend Deductions
a surface mining bill which strikes a balance
(Legislative) -- A change in tax laws applica-
ble to all industries, including utilities,
between our desires for reclamation and
which allows deductions of preferred stock
environmental protection and our need to
dividends for tax purposes to reduce the
increase domestic coal production substan-
cost of capital and stimulate equity rather
tially over the next ten years. The proposed
than debt financing.
legislation will correct the problems which
led to the President's veto of a surface
(d) Mandated Reform of State Utility Commission
mining bill last year.
Processes (Legislative) -- The legislation
would selectively reform utility commission
6.
Coal Leasing (Administrative) -- To assure
practices by: (1) setting a maximum limit
rapid production from existing leases and to
of 5 months for rate or service proceedings;
(2) requiring fuel adjustment pass-throughs,
make new, low sulfur coal supplies available,
including taxes; (3) requiring that con-
the President directed the Secretary of the
struction work in progress be included in a
Interior to:
utility's rate base; (4) removing any rules
prohibiting a utility from charging lower
(a) Adopt legal diligence requirements to
rates for electric power during off-peak
assure timely production from existing
hours and (5) allowing the cost of pollu-
leases.
tion control equipment to be included in
the rate base.
( Б ) Meet with Western Governors to explore
(e) Energy Resources Council Study
regional questions on economic, environmental
(Administrative) -- Review and report to the
and social impacts associated with new Federal
President on the entire regulatory process
coal leases.
and financial situation relating to electric
utilities and determine what further reforms
(c) Design a program of new coal leasing
or actions are needed. ERC will consult
consistent with timely development and
with State utility commissions, governors,
adequate return on public assets, if proper
public utilities and consumers.
environmental safeguards can be provided.
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8.
Muclear Power To accelerate the growth of
average for all new autos by 1980 model year.
nuclear power which supplies only one percent
These agreements are contingent upon relaxation
of our energy needs, the President is pro-
of Clean Air Act auto emission standards. The
posing, in addition to actions outlined above:
agreement provides for interim goals, Federal
monitoring and public reporting of progress.
(a) Expedited Licensing and Siting (Legislative) --
A Nuclear Facility Licensing Act to assure more
2.
Building Thermal Standards (Legislative) --
rapid siting and licensing of nuclear plants.
The President is asking Congress for legislation
to establish national mandatory thermal (heating
(b) 1976 Budget Increase (Legislative) --
and cooling) efficiency standards for new homes
An increase of $41 uillion in appropriations
and commercial buildings which would save the
for nuclear safety, safeguards, and waste
equivalent of over one-half million barrels of
management.
oil per day by 1985. Under this legislation:
9.
Energy Facilities Siting (Legislative) --
(a) The Secretary of Housing and Urban Develop-
Legislation would reduce energy facility siting
ment shall consult with engineering, architectural,
bottlenecks and assure sites for needed facili-
consumer, labor, industry, and government repre-
ties with proper land use considerations:
sentatives to advise on development of efficiency
standards.
(a) The legislation would require that states
have a comprehensive and coordinated process
(6) Thermal standards for one and two-family
for expeditious review and approval of energy
dwellings will be developed and implementation
facility applications; and state authorities
would begin within one year. New minimum
which ensure that final State energy facility
performance standards for energy in commercial
decisions cannot be nullified by actions of
and residential buildings would be developed
of local governments.
and implemented as soon thereafter as practicable.
(b) Provision for owners of eligible facilities
(c) Standards would be implemented by State
or citizens to sue States for inaction.
and local governments through local building
codes.
(c) Provide no Federal role in making case by
case siting decisions for the States.
(d) The President also directed the Secretary
of Housing and Urban Development to include
(B) Energy Conservation Actions
energy conservation standards in new mobile
home construction and safety standards.
The President announced a number of energy con
servation measures to reduce demand, including:
3.
Residential Conservation Tax Credit --
The President is asking Congress for legislation
1. Auto Gasoline Mileage Increases (Administrative) --
to provide incentives to homeowners for making
The Secretary of Transportation has
thermal efficiency improvements in existing
obtained written agreements with each of
homes. This measure, along with a stepped-up
the major domestic automobile manufacturers
public information program, could save the
which will yield a 40 percent improve-
equivalent of over 500,000 barrels per day
ment in fuel efficiency on a weighted
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
more
during the next three years.
(b) Improvements such as storm windows, and
insulation, would qualify for the tax credit.
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43
Low-Income Energy Conservation Program
authorize the government to purchase and pre-
Legislative) -- The President is proposing
pare the storage facilities (salt domes or steel
legislation to establish a Low-Income Energy
tanks), while cómplex institutional questions
Conservation Program to offer direct subsidies
are resolved and before oil for storage is
to low-income and elderly homeowners for certain
actually purchased. FEA will develop the over-
energy conservation improvements such as insula-
all program in cooperation with the Department
tion. The program is modeled upon a successful
of the Interior and the Department of Defense.
pilot program in Maine.
All engineering, planning, and environmental
studies would be completed within one year.
(a) The program would be administered by FEA,
The 1.3 billion barrels will not be complete
under new legislation, and the President is
for some years, since time is required to
requesting supplemental appropriations in 1975
purchase, prepare, and fill the facilities.
and $55 million in fiscal year 1976.
2.
Standby and Planning Authorities (Legislative) --
(b) Acting through the States, Federal funds
The President is requesting a set of emergency
would be provided to purchase materials.
standby authorities to be used to deal with
Volunteers or community groups could install
any significant future energy shortages. These
the materials.
authorities would also enable the United States
to fully implement the agreement on an Inter-
5.
Appliance Efficiency Standards (Administrative) --
national Energy Program between the United
The President directed the Energy Resources
States and other nations signed on November 18,
Council to develop energy efficiency goals for
1974. This legislation would include the
major appliances and to obtain agreements
authority to:
within six months from the major manufacturers
of these appliances to comply with the goals.
(a) Implement energy conservation plans to
The goal is a 20% average improvement by 1980
reduce demand for energy;
for all major appliances, including air condi-
tioners, refrigerators and other home appliances.
(b) allocate petroleum products and establish
Achievement of these goals would save the
price controls for allocated products;
equivalent of over one-half million barrels of
oil per day by 1985. If agreement cannot be
(c) ration fuels among end users;
reached, the President will submit legislation
to establish mandatory appliance efficiency
(d) allocate materials needed for energy
standards.
production where such materials may be in short
supply;
6.
Appliance and Auto Efficiency Labelling Act
(Legislative) -- The President will ask the
(e) increase production of domestic oil; and
Congress to enact a mandatory labelling bill to
require that energy efficiency labels be placed
(f) regulate petroleum inventories.
on new appliances and autos.
(c) Emergency Preparedness
III. ACTIONS ANNOUNCED BY THE PRESIDENT TO MEET LONG-TERM
GOALS (BEYOND 1985)
The President announced that comprehensive energy
emergency legislation will be proposed, encompassing
The expanded research and development program on which the
two major components.
nation is embarked will provide the basis for increasing
domestic energy supplies and maintaining energy independence.
1.
Strategic Petroleum Storage (Legislative) --
It will also make it possible in the long run for the U.S. to
Development of an energy storage system of one
export energy supplies and technology to others in the free
billion barrels for domestic use and 300 million
world. Important elements are:
barrels for military use. The legislation will
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45
IMPACTS OF NEAR AND MID-TERM
(A) Synthetic Fuels Program (Administrative) -- The
ACTIONS ON PETROLEUM CONSUMPTION AND IMPORTS
President announced a National Synthetic Fuels
Commercialization Program to ensure at least one
NEAR TERM PROGRAM
million barrels per day equivalent of synthetic fuels
(MM3/D)
capacity by 1935, using technologies now nearing
commercial application.
1975
1977
CONSUMPTION IF NO NEW ACTIONS
18.0
18.3
1.
Synthetic fuel types to be considered will
IMPORTS IF NO NEW ACTIONS
6.5
8.0
include synthetic crude from oil shale and a
wide range of clean solid, liquid, and gaseous
fuels derived from coal.
IMPORT SAVINGS
Less Service Savings by Short-term
1975
1977
2.
The Program would entail Federal incentives
Actions:
(possibly including price guarantees, purchase
agreements, capital subsidies, leasing pro-
Production from Elk Hills
0.2
0.3
grams, etc.), granted competitively, and would
Coal Conversion
0.1
0.3
be aimed at the production of selected types
Tax Package
0.9
1.6
of gaseous and liquid fuels from both coal and
oil shale.
TOTAL IMPORT SAVINGS
1.2
2.2
3.
The program will rely on existing legislative
authorities, including those contained in the
REMAINING IMPORTS
5.3
5.8
Federal Non-lluclear Energy Research and Develop-
ment Act of 1974, but new legislative authori-
ties will be requested if necessary.
MID-TERM PROGRAM
(B) Energy Research and Development Program -- In the
current fiscal year, the Federal Government has
CONSUMPTION IF NO NEW ACTIONS
23.9 MMB/D
greatly increased its funding for energy research
IMPORTS IF NO NEW ACTIONS
12.7 MMB/D
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,
Less Savings Achieved by
1985 IMPACT
colleges and universities and others. The President
Following Actions:
ON IMPORTS
stated that his 1976 Budget will continue to empha-
size these accelerated programs which include research
OCS Leasing
1.5
and the development of technology for energy conserva-
NPR-4 Development
2.0
tion and on all forms of energy including fossil
Coal Conversion
0.4
fuels, nuclear fission and fusion, solar and geothermal.
Synthetic Fuel Commercialization
0.3
Auto Efficiency Standards
1.0
(C) Energy Research and Development Administration -- (ERDA)
Continuation of Taxes
2.1
The President has signed an Executive Order which
Appliance Efficiency Goals
0.1
activates, effective January 19, 1975, the Energy
Insulation Tax Credit
0.3
Research and Development Administration. ERDA will
Thermal Standards
0.3
bring together in a single agency the major Federal
energy R & D programs which will have the responsibility
Total Import Savings by Actions
8.0
for leading the national effort to develop technology
to assure that the U.S. will have an ample and secure
Remaining Imports
4.7
supply of energy at reasonable prices. ERDA con-
solidates najor R s D functions previously handled
Less:
by the AEC, Department of the Interior, National
Emergency Storage
3.0
Science Foundation and Environmental Protection Agency.
Standby Authorities
1.7
ERDA will also continue the basic research, nuclear
materials production and weapons programs of the AEC.
NET IMPORT VULNERABILITY
0
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47
INTERNATIONAL ENERGY POLICY AND FINANCING ARRANGEMENTS
An emergency sharing arrangement to immediately
reduce member vulnerability to actual or threatened
embargoes by producers
BACKGROUND
A long-term cooperative program to reduce member
The cartel created by the Organization of Petroleum
nation dependence on imported oil,
Exporting Countries (OPEC) has successfully increased
their governments' price for exports of oil from
A comprehensive information system designed to
approximately $2 per barrel in mid-1973 to $10 per
improve our knowledge about the world oil market
barrel today. Even after paying for their own increased
and to provide a basis for consultations among
imports, OPEC nations will report a surplus of over
members and individual companies; and
$60 billion in 1974, which must be invested. Oil
price increases have created serious problems for the
A framework for coordinating relations with producing
world economy. Inflation pressures have been inten--
nations and other less developed consuming countries.
sified. Domestic economies have been disrupted.
Consuming nations have been reluctant to borrow to
The International Energy Agency has been established as
finance their oil purchases because of current
an autonomous organization under the OECD. It is open
balance of payments risks and the burden of future
to all OECD nations willing and able to meet the obli.-
interest costs and the repayment of massive debts.
gations created by the program. This international
International economic relations have been distorted
agreement establishes a number of conservation and energy
by the large flows of capital and uncertainties
resources development goals but each member is left free
about the future.
to determine what domestic measures to use in achieving
the targets. This flexibility enables the United States
U.S. POSITION
to coordinate our national and international energy goals.
The United States believes that the increased price of
OTHER U.S. ACTIONS AND PROPOSALS
oil is the major international economic problem and has
proposed a comprehensive program for reducing the current
The United States has also supported programs for pro--
exorbitant price. Oil importing nations must cooperate
tecting international stability against distorting
to reduce consumption and accelerate the development of
financial flows created by the sudden increase of oil
new sources of energy in order to create the economic
prices. Although the massive surplus of export earnings
conditions for a lower oil price. However until the
accumulated by the producing nations will have to be
price of oil does decline, international stability must
invested in the oil consuming nations, it is unlikely
be protected by financing facilities to assure oil
that these investments will be distributed so as to
importing nations that financing will be available on
match exactly the financing needs of individual impor-
reasonable terms to pay for their oil imports. The
ting nations. Fortunately the existing complex of
United States is active in developing these financing
private and official financial institutions has, in the
programs. Once a cooperative program for energy con--
case of the industrialized countries, been effective
servation and resource development and the interim
in redistributing the massive oil export earnings to
financing arrangements are agreed upon, it will be
date. However, there is concern that some individual
possible to have constructive meetings with the oil
industrialized nations may not be able to continue to
producers.
obtain needed funds at reasonable interest rates and
terms during the transition period until supplies are
ACTIONS TAKEN BY OIL CONSUMING NATIONS
increased, conservation efforts reduce oil imports and
the price of oil declines. Therefore, the United States
The oil consuming nations have already created the
has supported various proposals for "reshuffling" the
International Energy Agency to coordinate conservation
recycled funds among oil consuming nations, including:
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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48
EMBARGO FOR RELEASE UNTIL
Modification of International Monetary Fund (IMF)
1:00 pm, January 15, 1975
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
OUTLINE OF ENERGY
increase conservation and energy resource develop-
QUESTIONS AND ANSWERS
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
BACKGROUND
assistance to the most seriously affected develop--
ing nations on a concessional basis not now possible
Data History and Forecasts
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
NEAR-TERM ACTIONS
be provided through the sale of a small portion of
the IMF's gold holdings in which the differential
Import Fee, Tax and Decontrol
between the original cost of the gold and the
o
Naval Petroleum Reserve
current market price would be added to the trust
fund; and
MID-TERM PROGRAM
An increase in IMF quotas which would make more
resources available in 1976.
o Outer Continental Shelf Production
o
Domestic Price Uncertainty
These proposals will be discussed at ministerial level
o
Clean Air Act Amendments
meetings of the Group of Ten, the IMF Interim Committee
o
Strip Mining Legislation
and the International Monetary Fund/International Bank
o
Coal Leasing and Prices
for Reconstruction and Development Committee in
o
Electric Utilities
Washington, D.C. January 14 to 17.
o
Energy Facility Siting
Energy Conservation
In these meetings, the United States will continue to
press its views concerning the fundamental importance
of international cooperation to achieve necessary con-
EMERGENCY PLANNING MEASURES
servation and energy resources development goals as a
basis for protecting our national security and underlying
Emergency Storage
economic strength.
Standby Authority
LONG-TERM ACTIONS
Research and Development
ECONOMIC IMPACT
INTERNATIONAL
# # #
GENERAL
GPO 882.978
DATA HISTORY AND FORECASTS
Q.
Has demand for petroleum products increased since
the embargo?
A.
Domestic consumption of energy is now beginning to
increase again and is estimated to keep growing,
although at a slower rate than prior to the embargo.
The latest figures show total domestic demand to be
at 18.2 million barrels per day (MMB/D) as compared
to 17.7 MMB/D at the close of 1973. Gasoline
consumption dropped 3.4 percent during the first 9
months of 1974 (as compared to 1973), but has
increased since September .bu about 300,000 barrels
per day.
Q.
What about production and import levels?
A.
Domestic oil procuction continues to decline as
older fields have reached their peak. During the
BACKGROUND
first eleven months of 1974, domestic production
averaged 8.8 MMB/D as compared to 9.2 MMB/D in 1973.
As a result, imports continue to rise even with
present high prices. We are now importing 7.3 MMB/D
(average of 6.8 MMB/D in last quarter of 1974), as
compared to 6.5 MMB/D in October, 1973, the month
prior to the embargo.
Q.
What about coal production?
A.
Coal (approximately 20 percent of domestic energy
production) was the only major energy source that
showed increased output during the first three
quarters of 1974. Coal production in October was
5 percent above its level for the same period in
1973. However, the strike in November interrupted
coal output and the industry has not yet regained
former production levels.
Q.
Do you foresee any shortages in the next 6 months?
A.
We do not expect shortages of petroleum products but
we do project large shortages for natural gas, as high
as 14%. The greatest impact will be felt by electric
utilities and industries that receive natural gas on an
interruptible contract basis. These curtailments of
natural gas have already had a serious impact on
employment.
Q.
How high are current inventories?
A.
FEA figures indicate that December, 1974 crude oil
stocks were about 20 million barrels higher (this is
an adjusted figure to account for disparities between
the American Petroleum Institute and FEA reporting
methods) than the same period of 1973. Similarly,
stocks for refined petroleum products were higher in
December 1974 than the corresponding month in 1973 due
to reduced demand and increased imports. Coal stocks,
howèver, are down as a result of the recent UMW strike.
NEAR-TERM ACTIONS
IMPORT FEE, TAX AND DECONTROL
Q.
Why didn't you tighten the mandatory allocation
program which you already have authority to
Will the fee on imports create additional profits
administer rather than raising prices? Why not
Q.
rationing?
for the oil companies?
No, the import fee, by itself, will not increase
A.
The mandatory allocation program was designed in
A.
industry profits. However, the fee will place
response to an emergency situation, and does not
an upward pressure on the price for crude. Since
address the more basic economic issues. A tighter
the price for uncontrolled domestic crude will rise
mandatory allocation program could necessitate a
to meet the world price, industry profits will also
significant increase in the Federal bureaucracy
rise. This is why we are calling for a windfall
and could mean a return to the long gasoline lines
profits tax as part of the energy proposals. It
we experienced last winter. Additionally, rationing
will be retroactive to collect any profits caused
and price control programs are inevitably
discriminatory against those who would enter the
by Administrative actions.
market and provide competition.
Q.
Won't certain areas of the country which are heavily
While the Administration's program, which relies on
dependent on crude oil or product imports suffer a
the market forces, is more effective, the President
disproportionate burden as a result of the tariff?
announced his intention to guarantee reaching the
goals by using his authority to limit imports if
A.
No. The FEA is currently administering a program
necessary.
which substantially equalizes the cost of crude oil
to all domestic refiners. This crude equalization
program aids refiners with high crude costs at the
expense of other refiners which have access to
Q.
How much more expensive will gasoline and other
price-controlled domestic crude. Further, the
products be?
will be a $3 fee on crude and a $1.20 fee on refined
product fees will be less than crude fees; there
A.
On the average, if costs of a crude import $3 fee are
spread evenly among all products, prices of gasoline and
products in April.
other petroleum products refined from the higher
priced imported crude could rise as much as 5 cents
Q.
HOW does a tax or fee achieve our national energy
per gallon (controlled domestic oil will stay at
goals?
the same price).
A.
As a result of these measures, petroleum products
will become more expensive relative to other goods
The total tax package and decontrol would ultimately add
and services, thereby encouraging conservation and
about $4 a barrel (10 cents per gallon) to the average
discouraging consumption. Also, making imports
costs of all products.
more expensive than domestic supplies of petroleum
encourages the production of domestic crude oil.
Q.
will the fee help to lower world crude prices
and protect us from another embargo?
A.
The fee program will help to reduce our imports
of foreign oil by reducing our overall demand.
As a result, we will have less demand for products
from some OPEC nations To this extent, it may
affect some prices being charged by certain OPEC
nations. But overall, the fee will have a minimal
effect on lowering world crude prices in the
immediate future.
Q.
What are the limits to the President's power to
Q.
Wouldn't it be better to reduce demand by imposing
institute a fee?
import quotas instead of raising prices through a
fee?
A.
The President may impose a fee in response to a
national security finding and should be established
A.
at that amount sufficient to offset the threat to
No, it would not. Import quotas can cause disparities
national security.
in the marketplace by mandating specific, allowable
levels of products into the country. By raising
Q.
What additional actions are you asking from Congress?
prices via a fee, the individual consumer can
determine in what areas to conserve. While we are
A.
In conjunction with the establishment of the fee, we are
not considering the use of import quotas at this
asking Congress for an excise tax on domestic crude oil
time, we will submit legislation requesting the
(and will maintain a fee on all imports), the decontrol of
authority to use tariffs, import quotas or other
old crude oil, deregulation of new natural gas, windfall
measures to achieve energy price levels necessary
profits tax, and a natural gas excise tax.
to reach our goals. The Message stated that Presidential
power to limit oil imports would be used if necessary.
Q.
What are the differences between a tax, a fee and
a tariff?
All three are charges which can be used to produce
Q.
A.
What is the effect of decontrolling domestic old
revenue and all three have the effect of reducing
oil?
demand. The differences lie in the source of
authority to levy the charge. A tax must be levied
A.
Prices on the domestic market will rise to meet
by Congress for the purpose of raising domestic
world oil prices, and oil industry profits will also
revenue. A tariff is a charge against imports and
rise. This is why we must have immediate enactment
must also be authorized by the Congress. A fee is
of a windfall profits tax - to preclude this from
also levied on imported material but may be set for
happening.
non-revenue purposes and need not be legislated.
Q.
Why are you requesting the deregulation of
How much oil will the combined tax/fee program save?
natural gas prices?
Q.
The overall tax-package will save an estimated
A.
I want to let the free market work to the maximum
A.
1.6 MMB/D in 1977 and about 1.0 MMB/D in 1975.
extent possible. The deregulation of natural gas
prices will greatly encourage higher production
Q.
Will there be rationing?
levels in the long run. As you know, we are
currently faced with a natural gas shortage of
No, not unless another emergency embargo situation
14 percent for this winter. In the short run,
A.
higher prices will serve to lessen demand and will
necessitates it.
therefore mitigate the severity of this projected
Q.
Why not?
shortage.
Rationing will not solve our long-term problems
Q.
Isn't the ultimate effect of this action going to
A.
and will create severe energy disruptions in life-
be increased prices to the consumer?
styles and would require a targe bureaucracy to
A.
Yes, this will be the effect. We estimate that
administer.
the typical monthly natural gas bill to the
consumer would increase by about $8 by 1985. The
alternative to deregulation is less natural gas
and higher costs for other fuels, such as petroleum
and electricity.
Q.
How much will natural gas prices rise in the next
NAVAL PETROLEUM RESERVES
few years?
We estimate that, as a result of deregulation, the
Q.
A.
What is your specific proposal with regard to the
average natural gas prices will rise from 31¢/mcf
Naval Petroleum Reserves?
in the interstate market in 1974, to 35¢/mcf in
1975; 38¢/mcf in 1976; and 41¢/mcf in 1977. The
A.
There are two proposals involved. We have asked
average national natural gas price will be higher,
Congress to permit production of the Elk Hills,
because intrastate gas is not controlled.
California, Naval Petroleum Reserve (NPR-1) under
Navy control and are submitting legislation to the
The estimated market clearing price for natural
Congress to authorize the exploration, development
gas is 99¢/mcf, and would be reached by 1985.
and production of NPR-4 in Alaska. The oil produced
from NPR-1 would be used to top off all Defense
Q.
Why are you placing an excise tax on domestic
Department storage tanks with the remainder to be
natural gas?
sold at auction or exchanged for refined petroleum
products used by the Department of Defense. The
A.
The excise tax on natural gas will approximate the
production from NPR-4 would provide petroleum for
excise tax and import fees on oil on a Btu equivalency
the domestic economy as well as for defense needs.
basis. It will also inhibit preference for natural
gas over oil. This tax will reduce the curtailment
problem and lessen negative employment effects.
Q.
Who will have Government authority for developing
NPR #1?
Q.
How much will the production of old oil be stimulated
by price decontrol?
A.
I have asked the Congress to permit production of
We estimate that price decontrol could result in
the Elk Hills Naval Petroleum Reserve under Navy
A.
control.
an additional 1-2 MMB/D of crude oil production in the
next 3-4 years.
Q.
What are the advantages of an import fee over a
Q.
How quickly can NPR-1 and NPR-4 be brought onstream?
gasoline tax?
A.
NPR-1 can produce 160,000 barrels per day within a few
A.
An import fee covers all crude and product imports
months and 300,000 barrels per day by 1977. NPR-4 will
and spreads the effects of demand reduction more
take longer to produce as exploration and development
evenly than a gas tax. The gasoline tax would have
must first take place.
to be very large to save an equivalent amount of
oil -- at least 30¢ per gallon -- and it would
Q.
Can we use the Trans-Alaska Pipeline to move NPR-4 oil?
severely affect the already depressed automobile
industry and numerous related industries.
A.
No. North Slope oil production will fill the capacity of
Q.
Why doesn't the Administration provide priority treatment
the Trans-Alaska Pipeline and thus new transportation
in domestic production of crude oil relative to the levying
facilities will be needed for NPR-4.
of tariffs and excise taxes? For example, the fee on
imported crude could be $2.00 per barrel, whereas, the
Q.
domestic excise tax would be at $1.50. Won't such action
What is the time frame and cost involved in retrieving
oil and gas from NPR-4 in Alaska?
encourage domestic exploration as a result of an additional
financial incentive?
A.
The development of NPR-4 will require several years
and production is not expected before 1982 at the earliest.
A.
The immediate import fees will raise the prices of imports
The cost would be more than $400 million if exploration is
relative to domestic production. In the long-run, and at
done by the Government. If any part of NPR-4 is leased
the margin, decontrolled domestic crude would rise to the
commercially, revenues could more than offset costs. It
same selling price as foreign crude, and any differential
is estimated that about two million barrels per day can be
in taxes would probably only result in additional profits.
produced in NPR-4.
Further, decontrol of old oil and higher prices should
provide sufficient incentives to produce.
OUTER CONTINENTAL SHELF PRODUCTION
Q.
How do you know there are sufficient quantities
of oil and gas in the Outer Continental Shelf to make
its development worthwhile?
A.
We don't know for sure that there are sufficient
quantities for development although geological formations
indicate that there may be. We are reaffirming our
intention to continue an aggressive exploration and
development policy.
Q.
What will be done to insure that the environmental impacts
of oil and gas development in the OCS and other frontier
areas will be kept to safe levels?
A.
We already have an extensive body of law designed
to protect these areas from unacceptable levels of
environmental damage and a whole new level of technology
(environmental monitoring protection) has been developed in
response to these new laws. In the field of oil and gas
development technical procedures and equipment are now in
use designed to prevent oil spills and to minimize and
MID-TERM PROGRAM
control them once they occur. In addition the development
of environmental baselines and the requirement to monitor
the sites under development insures that any adverse effects
will be detected early to allow proper and effective
counteraction.
The Council on Environmental Quality conducted an extensive
study of oil and gas exploration in the offshore areas of
the U.S. and concluded that with proper safeguards, these
areas can be safely developed. The Department of the Interior
has now adopted literally all of the recommendations of
the CEQ report.
In addition, new funds are being requested for coastal
zone management to investigate and develop further the
additional safeguards needed to protect our environment.
Of course, before any leasing of frontier areas is done,
there, will be extensive public hearings and environmental
impact statements to advise the public of the safeguards
being taken.
DOMESTIC PRICE UNCERTAINTY
CLEAN AIR ACT AMENDMENTS
Q.
How would you determine when our vulnerability to
pressure from oil exporting countries is high.
enough to make a price floor or other measure desirable?
Q.
Will the Clean Fuels Deficit be eliminated by your
proposed energy actions?
A.
Our vulnerability becomes unacceptable when our expected
level of imports could not be completely replaced by
A.
Yes. The Clean Fuels Deficit is a term used to
emergency storage and standby actions. If the price
describe the potential shortage of low sulfur coal
of imported oil declines considerably, demand for oil
needed to meet emission limitations in 1975 and
would increase and import levels would get much higher.
beyond. This shortage of low sulfur coal was at one
point estimated to be as high as 200 million tons by
What is the difference between a quota and a price
mid-1975. The alternatives to these actions would be
Q.
to curtail coal burning, thereby curtailing electric
floor on imports?
energy generation, or to import low sulfur oil to fill
A quota is designed to restrict the actual amount of
the low. sulfur-coal gaps, thereby increasing our oil
A.
imports into the country while a price floor sets a
imports. The actions I propose include voluntary
minimum price for imports so that domestic fuels will
revision of State emission limitations, implementation
remain economically competitive with foreign sources.
of supplementary control systems and extensions of
compliance deadlines to eliminate this problem.
Q.
Wouldn't price floors maintain oil prices you have
claimed are exorbitant?
Q.
By relaxing lauto emission requirements, aren't you
letting the auto industry off the hook and at the same
A.
We would have no intention of setting a floor price at
time lowering the quality of our air?
current world oil price levels ($11-12 per barrel).
Rather, price floors could conceivably be set at a
A.
No. We are actually moving to a tougher standard
significantly lower level and still keep traditional
than now in force. I would like to emphasize that
domestic sources economic.
compliance with the legislative standards will still
be required and cleaner air will thus be achieved.
The interim standards set carbon monoxide and hydro-
carbon emissions at the current California levels
(9.0 grams and .9 grams per mile respectively) and
NOx emissions at 3.1 grams per mile for all States
except California, where 2.0 grams per mile will still
be required. Thus, the quality of our air will not be
significantly impaired nor will we be retreating to the
uncontrolled emission levels allowed before the passage
of the Clean Air Act.
The proposal to extend the time required to comply
with the original 1977 auto emission standards is
based. on the need to balance fuel conservation with
the Clean Air Act requirements; simply proceeding with
the present schedule for emission controls would have
involved the additional consumption of 1 1/2 to 5 1/2
billion gallons of gasoline per year by 1980. By
extending the time required to comply with the final
emission limitations we achieve fuel conservation in
the form of a 40 percent fuel efficiency improvement.
&
What are your plans for stack gas scrubbers?
Q.
It has been reported that the delays you propose in
auto emission requirements represent a deal with Detroit
A.
Certainly some types of scrubbers have not reached
the level of effectiveness that other designs have
to gain your 40% fuel efficiency goal -- is this true?
reached. However, scrubbers will play an important
A.
No, there is no deal involved. But this action is a
role in our future expanded use of coal. By 1985,
we expect that all plants which need scrubbers will
recognition of the \technical limitations that now exist.
in trying to meet both the auto emission requirements
have them.
as they presently exist and the 40% increased fuel
efficiency goal. By allowing for the delay we are
providing for a more gradual and less disruptive
Q.
Won't the Clean Air Act (CAA) and the Energy Supply
development of emission control equipment while at the
and Environmental Coordination Act (ESECA) Amendments
same time achieving a 40% increase in fuel efficiency.
which you are proposing mean a retreat from our present
efforts to clean the nation's air?
A.
No, it will not. There will be a delay in achieving
certain standards but the commitment remains firm.
The purpose of these proposed amendments is to facilitate
the use of coal thereby reducing our dependence on
imported oil and to resolve the clean fuels shortage
created by the unavailability of low sulfur coal and
stack gas scrubbers. In no way are they intended to
trade off our environmental needs for some quick energy
solutions.
Q.
How will your plan to convert electric utilities from
oil to coal affect air quality?
A.
There may be an absolute increase in air pollution
as a result of converting from oil to coal but the
burning of coal itself will not adversely affect air
quality since all coal conversion candidates will
have to develop plans for complying with primary
air quality standards. These plans must be approved
by the Environmental Protection Agency before con-
version orders may be placed in effect. In certain
instances, an oil burning facility required to convert
to coal may have difficulty obtaining the necessary
low sulfur coal or pollution control equipment. Such
facilities will not be converted unless they can comply
with ambient air quality standards which protect health.
COAL LEASING AND PRICES
STRIP MINING LEGISLATION
Q.
How will your proposed strip mining bill differ
Q.
Why do we need increased coal leasing in the
from the proposed bill which Congress developed
United States?
and you vetoed?
A.
In order for the nation to meet the goals I have
On December 30, 1974, I gave my objections to the
announced, we must act quickly to remove constraints
A.
strip mining bill proposed by Congress. The
and provide new incentives for domestic production.
Congressional bill would have resulted in a
We must focus our production capability on coal as it
reduction in coal production, and also contained
is our most abundant domestic resource. The Federal
too many vague and unclear requirements that could
Government owns over 200 billion tons of coal reserves,
have led to an. extensive litigation between the
but only 6 billion tons are currently scheduled to
Federal Government and various private interest
support production by 1980. Thus, we should move
groups. The bill I will propose will be similar in
ahead to design a new program of coal leasing and
many respects to the bill developed by Congress
should speed up production trom these leases, pro-
but amended to minimize these objections.
viding the environmental impact of these actions
is acceptable.
Q.
What was the effect of the United Mine Workers strike
on coal prices?
A.
Coal prices rose substantially on the spot market in
anticipation of and during the UMW strike. The cost
of the new UMW contract will add approximately $2-3
to the price of a ton of coal in 3 years. Other factors
continue to exert upward pressure on coal prices, the
most notable of which is the return to the use of less
expensive coal in place of higher priced oil by electric
utilities.
Q.
Even though the reserves are there, can the coal industry
produce as much coal as we need in the short term?
A.
If we eliminate the uncertainties surrounding coal
production, we can substantially close the gap between
coal supply and demand. The program I have outlined
addresses all these uncertainties (stripmining legis-
lation, coal leasing, Clean Air Act implementation,
oil import policy, natural gas pricing policy and
electricity demand) and should serve to assure an
increased production of coal. We may not, however,
be able to assure that coal production meets our
demands in the very near future due to the current
high oil prices and the shortage of natural gas which
heightens coal use. Increased coal production is also
constrained by manpower and equipment shortages in
the short term.
ELECTRIC UTILITIES
Q.
Why are you proposing rate increases in a time of
What legislative changes are you proposing for
double-digit inflation?
Q.
electric utility rate structures?
A.
The increases in cost of electricity must be paid
A.
The legislation we are proposing will require state
either directly by consumers, or indirectly through
regulatory authorities to permit the utilities under
Government subsidy. Direct increases will cut back
their jurisdiction to generate sufficient revenues
demand and reduce the overall increase required.
to cover costs during a period of rapid inflation
A Government subsidy, on the other hand, means that
and heavy capital expansion requirements.
everybody pays, whether they use more or less.
Therefore, price increases for electricity will
Three of the provisions, including the cost of construction
assure that those who use more, pay more.
work in progress in the rate base mandating fuel adjustment
Q.
pass-throughs, and setting a 5 month maximum processing
I'm using less electricity but paying more. Why?
time for regulatory hearings, would require all authorities
A.
to adopt procedures that are now being used in many
Under last year's unusual circumstances (unprecedented
jurisdictions.
oil price increases) the average per unit cost of
electricity to industry rose 55 percent and 20 percent
The off-peak pricing proposal would prevent authorities
to residential consumers. This increase was so large
from limiting electric utilities in their efforts to
that it offset most efforts to cut consumption.
increase revenues by selling more power during slack
Rates should not increase as fast this year.
demand periods.
Q.
Q.
You said you would take further actions to aid electric
record profits?
Isn't the electric utility industry already making
utilities if necessary. What actions do you anticipate?
A.
At this time, more than 60 percent of all planned
Profits did increase through 1973. However, in 1974,
A.
they began to decline. For the first three quarters
nuclear plants have been delayed or cancelled. The
of 1974, aggregate profits for the utility industry
Energy Resources Council will be working with the
utilities and, if warranted, we will propose additional
declined by about 7 percent from those of the equivalent
period of 1973. The critical issue, however, is that
measures to get these plants going again.
investor-owned electric utilities are now earning
less than three times their total interest charges.
Q.
Many of these proposals will lead to increases in
utility rates. How large will these increases be?
requirements for interest coverage.
A number of utilities are only barely meeting statutory
A.
The inclusion of Construction Work in Progress in
Q.
the rate base would add about 11 percent a year to
for How do fuel you intend to monitor what electric utilities pay
prices and the limitation on rate decision delay
conscious as possible?
to make sure they are trying to be as cost-
would add about 5 percent next year, and probably
less thereafter. The other proposals would add
A.
1 to 2 percent to rates. In all, for the first full
will authority to allow a justified fuel pass-through.
Our proposal calls for the appropriate local regulatory
year in which the charges would take effect, the
additional increase would be almost 20 percent.
oversee these regulations.
continue to be the function of that authority to It
Q.
If investor-owned utilities are unable to remain
ENERGY FACILITY SITING
solvent without Federal intervention, why aren't
you proposing public ownership at the State/municipal
Q.
What will the role of the States be in energy
level or nationalization?
facility siting?
A.
Public ownership as a solution implies that such
A.
Under the proposed facilities siting legislation,
ownership can solve the problem more cheaply.
States will be required to develop and submit
However, there is no consensus that publicly owned
comprehensive management plans to the FEA for the
power is cheaper than privately owned power in the
siting and construction of needed energy facilities
United States, except to the extent that it receives
within their boundaries. Each management plan will
subsidization through cheaper capital and lower taxes.
have to be approved by the FEA before State implementation
Such subsidy would tend to stimulate consumption
may begin.
relative to private ownership, and would be more
expensive in the long run.
Q.
What if FEA does not approve a plan?
Aren't you suggesting an infringement of states'
A.
Q.
If a State fails to formulate an acceptable plan,
rights? Isn't this unconstitutional?
the FEA Administrator may promulgate an energy facility
management program for the State to administer.
A.
While regulation of utility rates has traditionally
been under State jurisdiction, the interest of the
Q.
Can a State veto an FEA promulgated plan?
country as a whole is at stake. Specifically, the
Interstate Commerce Clause gives the Federal Government
A.
No.
the authority to regulate activities that affect
interstate commerce - and it has been determined that
consumption of electricity does affect interstate
Q.
Will the bill authorize FEA to overturn a State
commerce. Most of these proposals are not new and
decision on a particular site application?
already exist in many states. What we propose will
establish uniformity across the nation resulting in
A.
No. If a State fails to comply with the plans
more equitable treatment of all public utilities.
requirements in a particular case, the applicant
may seek relief in the courts.
ENERGY CONSERVATION
Q.
If energy efficiency improvements in the home
Q.
Are the specific conservation measures you've proposed
effectively reduce fuel costs, why is a tax credit
needed for thermal improvements?
tough enough to provide the petroleum demand reduction
necessary to achieve the import goal in 1977?
A.
More and more Americans are highly mobile and do
A.
Yes, they are. We are setting a goal to reduce imports
not remain in the same house for long periods of time.
by 2 MMB/D by the end of 1977. The savings from
Because of this factor, and because it may take a few
increased taxes and import fees amounts to 1.6 MMB/D
years to make thermal insulation pay off economically,
while coal conversion will bring an 0.3 MMB/D oil saving.
a tax credit will encourage homeowners to insulate now
The development of Elk Hills Naval Petroleum Reserve
regardless of how long they reside in the same house.
will allow us to cut another 0.3 MMB/D from our import
needs and additional conservation programs (public
information, auto efficiency standards, thermal standards,
Secondly, because the economics of insulation do
voluntary appliance standards) will save even more.
not pay off quickly, homeowners will have to pay
higher first costs. In this period of recession
Q.
Why do we need long term conservation measures if,
many will find it difficult to pay higher first costs
according to the Project Independence Report,
and a tax credit will help.
accelerated development of our supplies alone will
Q.
lead us to energy independence in 1985 if oil prices
Has the 55 m.p.h. speed limit been effective?
stay at $11 per barrel?
A.
Yes. Lower speed limits are directly attributable
A.
We need long term conservation goals specifically
to lower death rates on our highways and is a
because we do not expect that the future price of
factor in reduced gasoline consumption. As you
world oil will be $11 and we do not want prices that high.
know, the President just signed into law a bill
Since the world price may drop considerably below $11
making the 55 m.p.h. speed limit a national
per barrel, we must make sure that the resulting
mandatory limit for interstate highways and urges
increased demand will not increase our imports. We
all State Governors to vigorously enforce this
limit.
also need to stop using energy wastefully and to
preserve our limited oil resources as much as possible.
Q.
Will the conservation program you proposed result in
Q.
What steps are you taking to assure that conservation
attainment of the goal of one million barrels per day
goals are met by industry?
savings in imports for 1975 that you established in
A.
your energy message to Congress in October, 1974?
Members of the Administration have been meeting with
industrial leaders on a regular basis to work out
A.
Yes. If it is all carried out -- higher prices
programs of industrial conservation. We are receiving
resulting from the tariff and excise taxes, combined
commitments from these industries to conserve more
with the comparatively smaller immediate effects of
energy and I am confident that industry is prepared
specific conservation measures, such as the expanded
to conserve as much as possible. If savings are
conservation education program, the development of
not achieved by voluntary means, however, mandatory
the Elk Hills Naval Petroleum Reserve, and coal
measures will be considered.
conversion should provide us with at least one million
barrels per day savings in projected imports by the
fourth quarter of 1975.
However, attainment of this very near term goal is
not enough. Our attention must turn to the far tougher
goals of reducing our vulnerability to foreign supply
curtailments through 1977, and eliminating it by 1985.
DERALO FORD LIBRARY
Q.
Will the mandatory thermal standards delay recovery
for the construction industry anticipated during the
second half of 1975?
A.
Since the mandatory thermal standards proposed will
take six months to formulate, and subsequently will
be implemented in a phased program over three years,
this conservation action should have no impact on
the recovery of construction expected during 1975.
Q.
Why did you decide against mandatory appliance
standards?
A.
As in the case of automobile efficiency standards,
before the Government should intervene in the market-
place, industry should be provided an opportunity
to demonstrate that it can act responsibly and responsively
to the higher value on energy. For this reason, we
have allowed a short period for industry to voluntarily
institute measures to increase energy efficiency in
appliances and have asked the Energy Resources Council
to work with industry to establish the voluntary standards.
EMERGENCY PLANNING MEASURES
Q.
Why haven't you initiated any new public transportation
programs?
A.
We are already doing a number of things to stimulate
use of mass transit, including a rapid increase in
funds for its development. Additional actions have
not been taken because they would only result in small
additional savings of energy.
Q.
Do you think your total energy program places as much
emphasis on conservation as it does on resource
development?
A.
Yes. The program being proposed is a tough mandatory
energy conservation program and relies heavily on conser-
vation to reduce imports in the short-term.
Q.
EMERGENCY STORAGE
Why would oil be stored in salt domes located in
the Gulf Coast, when other regions are heavily
import dependent?
Q.
What kind of specific authority are you requesting
A.
with regard to emergency storage?
Suitable salt domes provide inexpensive storage
facilities and are located near crude oil distri-
A.
We are requesting authority to create and maintain
bution centers, refineries, and transportation
a strategic reserve capacity of more than 1 billion
facilities. Thus, during an embargo, oil stored
barrels of petroleum and petroleum products and the
in salt domes will be readily available to all
authority to determine under what circumstances and
sections of the country at equitable cost.
to what extent those reserves should be used during
emergency situations. This is sufficient to provide
Q.
How will the military be provided for in the event
3 million barrels of oil per day for a full year.
of another embargo?
Q.
What is the benefit of a storage program to safeguard
A.
Of the 1.3 billion barrels of petroleum emergency
against an embargo if it won't be operational until
storage capacity, 300 million barrels will be reserved
1980?
for national defense needs in case of an emergency.
While it is true that a storage program won't be
Q.
A.
Won't petroleum for storage have to be purchased
fully operational before 1980, it will provide some
from high priced foreign oil?
protection between now and then as stocks are
gradually accumulated. Further, we will need the
A.
No. We will not purchase significant quantities
protection provided by a storage program after 1980,
of oil for at least a couple of years, at which
as the nation will continue to be dependent upon
time prices may have broken. In addition, our
foreign imports to meet some portion of its energy
strategic reserves will be partially filled from
needs. During this interim period, we will continue
domestic sources.
our efforts toward stringent conservation by all
consuming nations.
Q.
Will we store all the oil in salt domes, or will some
be stored in conventional tanks?
Q.
How will the program be financed and will the owner-
ship be public or private?
A.
The type of storage facility, location and the mix
of crude oil and product to be stored will be determined
A.
We have not firmly established yet how the program
in a report to Congress one year after enactment of the
will be financed or who will own the storage facilities.
Strategic Reserve Bill. However, preliminary studies
These questions will be fully explored later in the
indicate that crude oil will comprise the majority of
planning and engineering stage.
the reserve and will be stored in salt domes, although
there will probably be selected product storage in
Q.
What products will be stored - crude as well as refined
steel tanks.
products?
A.
We currently anticipate that we will store predom-
inantly crude oil, although there will probably be
some storage of petroleum products, mainly for the
needs of the Northeastern part of our country. The
specific amounts of each type of storage will be
determined in the planning stages.
STANDBY AUTHORITY
Q.
What kind of standby authority are you asking for?
A.
The main features of the proposed legislation to
deal with emergency situations are:
- to allocate and control the price of domestic oil;
- to ration end use of energy directly if necessary;
- to implement energy conservation programs;
- to increase domestic oil production and allocate
supplies of critical materials.
- to regulate and control petioleum inventories.
This legislation will also contain authority for
the U.S. to comply with the International Energy
Program requiring international sharing of oil in
times of emergency.
LONG-TERM ACTIONS
Q.
Why are you asking Congress for standby energy
emergency authorities?
A.
In an emergency situation, such as an embargo, the
President should have the authority to act quickly
and effectively to minimize the impact on this
country. Furthermore, standby conservation authority
is one of the requirements of the International Energy
Plan. I must emphasize, however, that this is "standby"
authority to be activated only in a time of crisis.
RESEARCH AND DEVELOPMENT
Q.
Many environmentalists are concerned about the
development and use of the nuclear breeder reactor --
what is the Administration's position on this issue?
Q.
What are you doing about solar energy development?
A.
We have continued support of an expanded R&D program
for breeder reactors and will spend over $500
A.
Federal funding for solar energy R&D has climbed from
million in FY 76 to answer some of these questions.
approximately $3 million in FY 1972 to approximately
$50 million in FY 1975. The recently enacted Solar
All projections indicate that nuclear power will
Heating and Cooling Demonstration Act of 1974 provides
become an increasingly important source of electric
an additional $60 million over five years for
power generation. However, for such growth to occur,
developing and demonstrating solar heating and cooling
nuclear fuel will need to be readily available, for
technology. Planning is well underway to implement
our supply of economically available domestic nuclear
this program. The Solar Research and Development Act
fuel is limited. Thus, we must supplement this domestic
which was also just recently enacted authorizes another
supply by developing other supply sources.
$75 million in FY 1976 for solar energy R&D. The
Administration is continuing to review the requirements
The breeder reactor is one such supply source.
of the program to determine the appropriate level of
Other sources of nuclear fuel and other methods for
funding that can be usefully spent over the next five
nuclear power generation are also being investigated.
years to develop solar energy technology.
Q.
What role will ERDA play in achieving these goals?
&
What are your specific proposals with regard to
increasing nuclear R&D?
A.
ERDA's mission is to develop ways of using solar
energy, geothermal energy, nuclear power, coal
A.
Nuclear energy holds great promise in satisfying our
gasification and other new or undeveloped energy
energy demand. Unfortunately, it now accounts for only
sources and will play a major role in achieving our
1% of our energy needs due to technical problems,
long-term goals.
construction delays, and other bottlenecks which have
slowed its progress. We are markedly increasing the
budget appropriation for nuclear waste disposal and
for continued improvements in safeguards.
Q.
Will your Synthetic Fuels Commercialization Program
encourage oil shale development at the expense of the
environment?
A.
No. The program could lessen environmental impacts
if we can learn to commercialize cleaner types of
production, such as in-situ processing of oil shale.
In addition, one of the important purposes of this
program will be to investigate and determine the
environmental problems associated with synthetic fuels
development and to identify the solutions.
Only when we have developed commercially useable
technologies which are environmentally acceptable
*will we proceed to the final step of full commercial
implementation.
ECONOMIC IMPACT
Q.
What impact will be made on the Federal budget by
those programs proposed within the energy message?
A.
There will be very small budget impacts in FY 75.
In FY 76 these programs could increase Federal
obligations by 100-200 million dollars, mostly for
conservation and facility siting programs, but of
course those are more than offset by the revenues
raised by the conservation tax measures.
The emergency storage program will be financed from
a special fund which will utilize revenues from Naval
Petroleum Reserve productions
Q.
The Administration expects prices of energy and
energy-intensive goods to rise, and plans to
offset the impact by reducing income taxes. Won't
this affect individuals and income groups differently?
Will low-income households tend to be affected more?
How does the Administration plan to assist low-income
households?
A.
Individuals and income groups will be affected
ECONOMIC IMPACT
differently by these proposals. What we can do and
are doing is to provide a level of tax relief that
will stimulate the entire economy for the benefit
of all citizens. These tax cuts proposed by the
Administration will provide relief to low-income
households. In addition a rebate of $80 per adult
will be provided to individuals whose incomes are
so low that they do not pay taxes.
Q.
What are the long run and short run effects of the
President's program on the regional costs of energy?
A.
While there will be some significant fuel price increases
in the Northeast, the uneven regional effects will be
dealt with through the existing cost equalization program
and lower product import fees. In the longer term,
regional effects will be handled by decontrolling the
price of crude oil and thus eliminating any petroleum
price differentials.
Q.
What will the effects of the program be on the economy
in terms of inflation and recession?
A.
This program contains the balancing elements essential
to meet the problems inherent in the existing economic
environment. It will reduce our balance of payments,
increase domestic resource development, and encourage
recognition of the need for energy conservation and the
fact that energy is no longer abundant. This program
will produce higher prices in the short run which will
result in a one-time increase in inflation, but will
prepare us for dealing with future energy disruptions
which could be devastating to our economy.
Q.
How much will all your programs increase the average
family's bills in a year?
A.
This program is estimated to increase the average middle-
income family's energy budget by about $250 in 1975.
Q.
What will be the effect of this program on the dollar
outflow for oil?
A.
The United States spent $2.7 billion on petroleum
imports in 1970. This dollar outflow rose to
INTERNATIONAL
$23.6 billion in 1974. If no new actions are
initiated, we estimate the petroleum revenue
outflow to reach $32.1 billion in 1977 and $32.4
billion in 1985. With this program, we estimate
outflows to be $21.3 billion in 1977 and $12.0
billion in 1985.
INTERNATIONAL
Q.
How do you expect the OPEC producing countries to
react to your energy program?
A.
Most of the OPEC governments have urged on several
occasions that the U. S. and other consumer countries
adopt policies to encourage conservation and more
rational energy use. Many of them have also suggested
that the industrial countries accelerate the develop-
ment of alternative energy sources to reduce demands
on their non-renewable petroleum reserves. We believe
these features of the President's program will be
viewed favorably by the producing countries as well
as by other importing countries.
Q.
Will we get any North Sea oil? Mexican oil?
A.
While the United States will strive to achieve energy
GENERAL
independence, we will still have to import some oil and
will try to import from relatively secure sources. We
will pursue negotiations with Mexico and with North Sea
oil producers to add imports from these areas.
Q.
Regarding Canada's decision to phase out exporting
crude to the U.S., what effect will this have on the
U.S., particularly on the Upper Midwest supply and
demand situation?
A.
Domestic refiners in the upper Midwest will be obliged
to obtain their crude oil from alternate sources. This
will probably require the construction or expansion of
pipeline capacity. Marketers in this region may be able
to obtain refined products from Canada should a crude
shortfall develop in the interim. Demand will be
unaffected unless a severe product shortage arises,
with its attendant gasoline lines and other inconveniences.
Careful planning and timing should enable the change in
supply patterns to take place with a minimum of
disruptions in product availability or price.
GENERAL
Q.
How can you propose great increases in resource
development when it is a fact that there are acute
shortages of materials and equipment throughout the
economy?
Q.
Do you believe that the National Environmental Policy
Act (NEPA) is a hindrance to the development of domestic
A.
At present, many categories of steel products, plate
and tubular goods are in short supply. There is little
energy production?
that can be done to accelerate supply in the next 2-3
A.
No, I do not. NEPA was promulgated to insure that
years and that is why this program concentrates on
environmental concerns were considered in Government
reducing demand. Within the 1975-1985 time period,
decision making. Because of this new, major consideration,
however, new capacity will come on-stream and the
decision making will in many instances take more time and
problem will be eased.
require more detailed review than was required in the past.
However, this process should ensure that the energy projects
selected will maintain the quality of the environment.
Q.
In compiling your energy message, whose statistical data
did you rely on -- industry or government?
A.
Ours. One of the real achievements in the last year
Q.
What would be the projected profit picture for the oil
was growth in the capability of the Federal government
industry this year if a windfall profits tax were enacted?
to provide its own energy datà. The analyses in this
If one were not enacted?
program were developed by the government using its own
reporting systems and analytical tools.
A.
Either way, we estimate that profits will be relatively
constant this year. If we maintain price controls but
do not enact a windfall profits tax, we can expect industry
Q.
What can the public do to contribute to the success
profits to remain stable. If we decontrol old oil and
of your program?
enact a tax, we can expect a small decrease in profits from
last year's levels.
A.
I am hoping that all Americans will support this program
in every way possible. The most significant contribution
the average consumer can make is in the area of energy
conser ation -- by installing thermally efficient insula-
Q.
What are you going to do about getting New England
tion in their homes, by lowering thermostats, by driving
to build refineries?
55 MPH and by driving less. The greatest contributions
will come when we all learn how to conserve which is why
A.
The Administration intends to encourage refinery
I have requested an increase of $4 million in the govern-
construction in all areas of the country and particularly
ment's public information program. We will try to explain
in those in which there is a. significant refining deficit.
the rationale and effects of this program to all Americans
In New England, for example, it would be beneficial to
in the next several weeks.
have refining capability now and particularly if Atlantic
OCS production begins. Refineries in that area could
offset New England's extensive reliance on product imports
Q.
What is the effect of the Trans Alaska Pipeline on
and could create jobs.
domestic supply plans and will it help the situation?
Are there any plans to speed up construction? What
about a second pipeline?
Q.
Why do we say that independence and self-sufficiency can
A.
The Trans Alaska Pipeline will supply more than 2 MMB/D
now be attained in 1985 rather than 1980 as was earlier
of domestic crude production, almost 20 percent above
announced by President Nixon?
current production levels. To assure rapid completion
of, the pipeline, the Administration has already given
A.
After a thorough review of potential domestic supply
priority to its requirements of equipment and materials.
and demand for all fuels, on a regional basis, we have
A second pipeline could be constructed later if necessary.
concluded that independence by 1980 cannot be attained.
The lead-times for exploring and producing oil from new
sources and for constructing new facilities is too great
to expand domestic supply sufficiently.
GPO 882-971
PETROLEUM TRENDS
20
DOMESTIC CONSUMPTION
15
IMPORTS
MMB/D
10
DOMESTIC PRODUCTION
5
1950
1955
1960
1965
1970
1974
1973 CRUDE PETROLEUM PRODUCTION AND
PETROLEUM PRODUCT CONSUMPTION FOR MAJOR
PRODUCING AND CONSUMING AREAS
(MMB/D)
25
PRODUCTION
CONSUMPTION
20
15
10
5
0
MIDDLE
AFRICA
CARIB
COMM
OTHER
OTHER
JAPAN
U.S.
NON-COMM
EAST
COUNTRIES
EAST
WEST
EUROPE
HEMIS
HEMIS
20.2
4.8
3.2
1.0
-0.4
-0.7
-5.2
-6.3
-14.1
(PRODUCTION MINUS CONSUMPTION)
THE PRESIDENT'S SHORT-TERM PROGRAM
25
20
TAX PACKAGE
COAL
CONVERSION
15
IMPORTS
[MMB/D]
IMPORTS
IMPORTS
NPR-1
10
DOMESTIC
DOMESTIC
PRODUCTION
PRODUCTION
DOMESTIC
PRODUCTION
5
1974
1977
1977
WITH NO NEW WITH PRESIDENT'S
ACTIONS
PROGRAM
IMPACTS OF SHORT-TERM PROGRAM
1975 [MMB/D] 1977 [MMB/D]
CONSUMPTION IF NO NEW ACTIONS
18.0
18.3
IMPORTS IF NO NEW ACTIONS
6.5
8.0
IMPORT SAVINGS
LESS SAVINGS BY SHORT-TERM ACTIONS: 1975 [MMB/D] 1977 [MMB/D]
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
THE
PRICE EFFECTS OF PROGRAM
1500
DIRECT HOUSEHOLD ENERGY
1000
EXPENDITURES ($/YR)
500
0
1974
1975
1975
NO NEW
WITH
ACTIONS
PRESIDENTS
PROGRAM
(WITHOUT
REBATES)
ACTIONS TO BECOME INDEPENDENT
110
CONSERVATION PROGRAM
100
OIL
EMERGENCY STORAGE
IMPORTS
STANDBY AUTHORITY
90
LICENSING ACT
NUCLEAR
UTILITY PROGRAM
80
OTHER
SYNTHETIC FUEL PROGRAM
FACILITY SITING
70
QUADRILLION BTU's
GAS
DEREGULATION
60
50
40
NAVAL PETROLEUM RESERVES
OIL
OCS LEASING
30
20
COAL LEASING
10
COAL
STRIP MINING LEGISLATION
CLEAN AIR ACT AMENDMENTS
1970
1974
1985
UNDER PRESIDENT'S
PROGRAM
IMPACT OF THE PRESIDENT'S PROGRAMS
ON PETROLEUM IMPORTS
25
40% AUTO STD.
APPLIANCE GOAL
BLDG. TAX CREDIT
THERMAL STD.
$2 TARIFF
20
COAL CONVERSION
IMPORTS
IMPORTS
12.7 MMB/D
4.7 MMB/D
[MMB/D]
[53%]
[20%]
15
IMPORTS
NPR-4
6.1 MMB/D
[37%]
OCS
ALASKA
SYN. FUEL PROG.
10
NORTH SLOPE
DECONTROL
DOMESTIC
PRODUCTION
DOMESTIC
DOMESTIC
5
PRODUCTION
PRODUCTION
1974
1985
1985
NO NEW
PRESIDENT'S
ACTIONS
PROGRAM
40
U.S. EXPENDITURES FOR FOREIGN OIL
PETROLEUM DOLLAR OUTFLOW ($BILLION/YR)
30
20
10
1970
1974
1977 1977
1985 1985
NO NEW WITH
NO NEW WITH
ACTIONS PRESI-
ACTIONS PRESI-
DENT 's
DENT'S
PROGRAM
PROGRAM
EFFECTS OF MID-TERM PROGRAM
(1985)
DEMAND WITH NO NEW ACTIONS
23.9 MMB/D
IMPORTS WITH NO NEW ACTIONS
12.7 MMB/D
1985 IMPACT
LESS SAVINGS ACHIEVED BY FOLLOWING ACTIONS: ON IMPORTS [MMB/D]
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