Farmers Fear Latest Crop of Tax Hikes : A few cents here on propane, a few cents there on diesel would add up to another assault on a fragile economy, they say.

OWINGS, Md. —  J. Allen Swann uses a lot of energy.

First, there’s the cost of the propane to heat the greenhouse at the farm west of Chesapeake Bay where Swann and his nephew, Jody, 26, are growing those 56,000 little tobacco plants.

Under the Clinton Administration’s energy tax proposal, Swann would pay an extra 2.3 cents on each of the 2,000 gallons of propane he uses annually. That’s $46 in additional taxes.

Then there’s the tractor, a towering, shuddering John Deere that eats seven gallons of diesel fuel an hour while working the corn crop. Swann figures he puts 500 hours on the tractor a year, paying 93 cents a gallon for diesel fuel. Under the energy tax, that expense would go up as well, to around $1.01 per gallon, raising his annual diesel fuel cost by $280.

“The energy tax is going to be pretty devastating to the agricultural sector,” said Terry Francl, a senior economist for the American Farm Bureau Federation. As farmers see it, the tax would be another in a series of federal actions that has raised the cost of farming, at a time when farm incomes have dropped sharply.

The White House has proposed the tax, one of the largest in history, as part of a plan to reduce the federal deficit by $340 billion over five years. Administration officials calculate that it will cost an American household earning $40,000 a year about $200 in higher costs for energy use and the goods produced by energy-dependent businesses.

Farmers, however, say they are caught in a special bind. Unlike those in other businesses, farmers have a difficult time passing their higher costs on to consumers. Heavy government regulation and stiff international competition often combine to dictate the price at which farmers must sell their goods.

Nebraska farmer Gene Wray grows corn and sorghum and raises cattle on his 4,500 acres near the small town of Scotia.

When he started farming in 1979, diesel fuel cost 45 to 50 cents a gallon. Now he pays 83 cents a gallon.

That might be OK if his crops weren’t worth less today than they were 13 years ago. The same bushel of corn that earned Wray a little over $3 in 1980 brought in $2.05 last summer. Over those same years, Wray’s cost of living has gone up too.

A 1990 study by the Agriculture Department put the average U.S. farm household income at $39,007.

But by Wray’s calculations, the energy tax would cost him an extra $1,730 a year for diesel fuel, oil, gasoline, propane and electricity.

And that doesn’t count indirect costs, he said. For instance, once Wray’s cattle reach 700 pounds, he sells them to Barney Peterson, who fattens them up for market sale. Wray thinks Peterson will be forced to offset his own higher energy taxes by cutting the price he pays for cattle.

Peterson himself had not given the tax much thought until asked by a reporter. He then did some quick calculations and estimated his production costs would rise $6,000 a year.

“Oh my gosh,” he said. “Is it really going to cost me that much?” Peterson said he may well have to rethink his purchase prices.

In North Dakota, the state university estimates that the energy tax will cost the typical farmer $1,200 a year, or 6.8% of the average farm income in the state--$17,600 a year.

Administration officials agree that many farmers are struggling. However, they also argue that the energy tax is necessary to reduce the budget deficit and, in any case, is preferable to a gasoline tax that would hit rural communities even harder than urban areas.

“Hah!” said Sen. Kent Conrad (D-N.D.). “That’s the same thing as if you tell a patient suffering from cancer, ‘You should be grateful, you could have had a heart attack!’ ”

So far, farmers have had some success making their case in Congress. Under legislation approved by the House Ways and Means Committee last week, taxes on gas and diesel fuels used for farm work would be cut to just one-third of the original amount proposed. In exchange, farm lobbyists agreed to relinquish the ethanol and methanol tax exemption promised them earlier.

If Conrad and others have their way, the Administration will make more concessions, perhaps including a full exemption for all farm fuels.