Working Through the Tax Hike Spin

Mark Green
Posted March 26, 2012

With the U.S. Senate getting ready to debate proposals that would raise taxes on American energy companies, the White House blog spins:

"Instead of subsidizing the fossil fuels of the last century by giving away $4 billion of taxpayer money each year to oil companies that are more profitable than ever, we should be investing in a clean energy future—especially when gas prices are high and drivers, whose budgets are already stretched thin, are feeling the pain at the pump."

In reverse order, taking on the White House’s points:

Yesterday’s energy – We thought the administration had shelved this rhetoric, but it’s back – despite government data showing that oil and natural gas not only is today’s energy, it’s tomorrow’s as well. According to the Energy Information Administration more than 55 percent of our energy will be supplied by oil and gas in 2035.

Subsidies/taxpayer money giveaways – Here the blog is inaccurate, and it matters. The oil and natural gas industry receives zero targeted subsidies from government, period. It uses tax deductions generally available to U.S. business. A deduction is not a subsidy. See here, and here.

API Tax Policy Manager Stephen Comstock, who spoke with reporters on a conference call Monday:

“Some bad ideas never seem to go away, which may explain why the U.S. Senate is again scheduled to vote on a proposal to single out the U.S. oil and natural gas industry for billions of dollars in tax increases.  And some are even suggesting that repealing ordinary business tax provisions for our industry is part of the answer to high gasoline prices. Let’s be clear: This proposal is not about addressing gasoline prices.  Higher taxes will not result in lower fuel prices.  In fact, a recent Congressional Research Service analysis concludes that actions like this could increase fuel prices.”

Whether the president believes the CRS isn’t as important, politically, as this: The American people believe it – 76 percent telling a recent Harris Interactive survey that they think raising taxes on oil and natural gas companies could end up costing them more at the pump.

More from Comstock:

“Other supporters of this proposal will point at company profits and claim that their proposal will ensure our industry ‘pays its fair share.’  Singling out five companies for higher taxes is not about fairness.  When did being profitable become a dirty word?  The owners of those companies – the people who benefit from those profits – are the people who own shares in those companies, in their 401(k)s, IRAs, pension plans and other accounts.”

Energy tax facts cited by Comstock:

• The oil and natural gas industry delivers $86 million a day to the U.S. treasury in taxes, rental payments, royalties and other production fees – more than $30 billion a year. More is delivered to state and local governments.
• The industry pays more in taxes than any other industry, and its effective tax rate is substantially higher than the average for the other S&P Industrials – 41 percent versus 26 percent.
• A study by Wood Mackenzie found that the right policies in place, allowing the industry to produce more oil and natural gas at home, could increase cumulative government revenue by $150 billion by 2025. Comstock:

“Had those policies been in place over the last few years, it would already be reflected in additional government revenues.  We would not have lost an estimated $5 billion from slower development in the Gulf of Mexico, for example.”

Raising taxes, Comstock said, would show an initial rise in government revenues, which would fall after about five years, and 20 years from now the country could face a cumulative $65 billion shortfall. There could be lost jobs and energy production in less than 10 years.

There’s a better idea: Let America’s oil and natural gas companies find and develop more American energy. Comstock:

“There’s a simple answer to getting more government revenue from the oil and natural gas industry – allow us to produce more of the energy our nation and our economy will need for decades to come right here at home.  Not only will this create jobs and generate government revenue, it will send a strong signal to energy markets that could put downward pressure on fuel prices.”