Once upon a time I felt sure I knew the exact definition of a Btu (British thermal unit): The energy required to heat one pound of water by one degree Fahrenheit. But that was before President Clinton unveiled his proposed Btu tax that's supposed to extract $33 billion a year from hapless citizens—$320 for the average household, and a great deal more for middle-class and rural households. It will actually net the Treasury much less, but what a honey pot for lawyers, lobbyists, accountants and—of course—politicians who want to bestow favors! All of the evils that Mr. Clinton campaigned against!

You see, we have now learned that a Btu is not just a Btu; it all depends on where it comes from. If the energy comes from coal, natural gas or nuclear, then the tax is "only" 26 cents per million Btu. But if derived from petroleum, it's subject to a 34-cent surtax and taxed at 60 cents per million Btu (roughly $3.50 per 42 gallon barrel). Renewable energy sources, like solar, wind or geothermal, miraculously create tax-free Btus—unless the source is hydropower, another form of renewable energy. Hydro's "Btus" are counted like those of nuclear—even though hydro doesn't put out any heat. Go figure.

It gets worse. What about liquified natural gas—LNG? Even though liquid like oil, its tax will be 26 cents. What about the liquid propane and butane “milked" from natural gas? If you guessed 26 cents, you may be right. Now what about butane and propane produced from the distillation of petroleum in refineries? The decision to exempt them from the oil surtax must have taken a lawyer—or likely more than one—and a few lobbyists.

Lobbying becomes even more crucial—and lucrative—with liquid transportation fuels that have to be manufactured and are often blended with (oil-based) gasoline— like methanol (from gas) and ethanol (from farm crops). Will the tax be 60 cents, 26 cents or zero? If you are familiar with the awesome persuasiveness of corn processor Archer-Daniels-Midland, you might guess zero for corn-based ethanol. In fact, the administration last month informed Sen. Bob Kerrey, Nebraska Democrat, by letter of its decision to completely exempt both methanol and ethanol from the Btu tax—while at the same time the Senate voted down a resolution by Democratic Sens. Paul Wellstone of Minnesota and Tom Harkin of Iowa to exempt ethanol. What a zoo!

When the Btu tax proposal finally hits Congress, we will witness a dazzling display of political science in action as lobbyists carve out special exemptions for different producer and user groups. Exporters, of course, will put forth claims based on international competitiveness and try to include all products produced from fossil fuels What about farmers, who export much of their product; will their chemical fertilizer, made from oil or gas, be taxed? Will coal exporters have to pay the tax on transportation from mine to the port? What about producers of methanol; will they be exempt from tax on natural gas used as a feedstock? And what about producers of ethanol; will they pay tax on the considerable energy used to refine corn into a transportation fuel? Will Democratic Sens. Edward Kennedy of Massachusetts and George Mitchell of Maine succeed in eliminating the oil surtax on home heating oil, the preferred fuel in New England? You bet!

It's a big mystery to me why Mr. Clinton singled out oil for punishment. I thought that he and Vice President Al Gore were worried about the environment and global warming; but oil puts out less carbon dioxide per Btu than coal. Could it be that coal senators are too powerful and the political price too high? But even so, this louver coal tax will fall more heavily, percentage-wise, on Western low-sulfur coal and lignite, which are the cheapest coals and also the least polluting. Now that's something to think about.

The usual excuse for taxing oil more heavily is that it will reduce imports and advance national security. But this standard rhetoric doesn't hold water. Just look at the numbers: The wholesale price of a gallon of gasoline should be only 55 cents, but is being raised by about 25 cents through the special refining steps and additives required by clean-air legislation. Federal and state taxes add another 35 cents a gallon. A Btu tax of about 8 cents a gallon, and figuring 10,000 miles per year and 20 miles to the gallon, will cost the average driver approximately $40 a year. Compare this with insurance costs of $500 to $1,000, depreciation of $1,000 to $3,000, not to mention repairs and parking costs. I don't think the Btu tax will have much impact on driving habits or oil imports.

Oil imports may actually increase because of the perverse effects of the Btu tax. Much of U.S. domestic production comes from small oil wells with operating costs among the highest in the world and close to the price of oil. An energy tax raises the cost of pumping, water injection or other special recovery techniques, putting such marginal wells out of business—and thus reducing domestic oil and gas product lion.

Nobody knows, of course, just how much the Btu tax will actually bring in to the U.S. Treasury— once we subtract all the producer and user exemptions, plus the costs of LIHEAP (low income home energy assistance program), earned income tax credits and more food stamps. (The Treasury estimates these subsidies—designed to offset some of the regressive effects of the tax— at $11 billion, one-third of the revenues. The middle class gets stuck with paying the full cost—as usual.)

In addition, however, one has to reckon the losses inflicted on the nation's economy from the distortions and misallocations caused by the tax; according to DRI-McGraw Hill, a respected economic consulting firm: a GNP loss of $34 billion annually by 1998, after full implementation of the tax, plus a reduction of about 400,000 jobs.

If the White House is really hell-bent on raising revenues from energy fuels, there may be a not-as-bad alternative to the Btu tax—without the stupendous costs of lobbying and litigation, monitoring and record-keeping, tax collection and enforcement, and of an administrative structure rivaling that of the 1970s, when oil price controls and gasoline lines were in vogue.

We could simply increase the existing gasoline tax, where the collection machinery is already in place, and apply it to all motor fuels, including gasohol. (The Btu tax on oil products is, in effect, close to being a gasoline tax.)

So why not just boost the present 14-cent federal gasoline tax? Plain politics: It is too visible— and unpopular. But that's a strong argument in its favor: Drivers will immediately learn how much they're being taxed. A Btu tax, on the other hand, is a sneaky tax; the consumer will never find out why prices for food, heat, transportation and other necessities are going up. He'll blame the “greedy" oil companies, farmers, industry or electric utilities, but never the government—which can keep raising the Btu tax with little fear of being found out.

The Btu tax will be judged to be arbitrary in its application and unfair in its distribution of the burden. It is inflationary, damages the economy and international competitiveness, and destroys jobs. It is clearly an inefficient tax that wastes much of what it collects. It's a hidden tax that can only go one way in future: Upward!

Worst of all, it may just be the first step toward the infamous “carbon tax," alleged by environmental zealots, now ensconced in the White House, to be the answer to the "threat" of greenhouse warming. Once the initial Btu tax is in place, it can be—and surely will be— transformed into a carbon tax by ratcheting up the tax on coal to ever higher values. Then—like kudzu in Georgia—these taxes will grow and strangle the economy.