100 Days: Tax Reform Should Be Pro-Jobs, Pro-Growth

Mark Green
Posted February 28, 2017

Washington is having a discussion right now about reforming the tax code, no doubt reflecting the importance of taxes and the economy during the 2016 election campaign. The right approach will seek reforms that foster job creation and economic growth, and, encouragingly, that’s what the new administration has talked about in its early days.

This approach should be applied to our industry as well. Rather than target oil and natural gas companies with higher taxes that could chill investment in energy development and hinder production, the tax code should help reformed to create a pro-growth environment – one that would result in more energy development and more revenue to government than a higher taxes path.

It’s our sense that Americans understand this point. More than seven in 10 who voted last November said they oppose higher taxes that would decrease energy investment and reduce production.

For the energy industry, the ability to recover certain capital expenses through tax provisions, such as the one for recovering intangible drilling costs, is key to the continuing investments needed to locate oil and natural gas and drill new wells. Eliminating cost-recovery mechanisms could stifle production and job growth. That’s why our industry is focused on the need for a pro-growth tax code.

The U.S. leads the world in the production of natural gas and oil, thanks to surging domestic development of energy-rich shale deposits using modern hydraulic fracturing and horizontal drilling. The American energy renaissance has boosted the economy, increased U.S. energy security, lowered carbon emissions and raised this country’s standing in the world.

Most Americans probably recognize that energy tax policy can have as much impact on U.S. energy security as other factors, such as access to reserves and the regulatory environment. They may not know that our industry already contributes about $70 million a day on average to the federal government in taxes, rents and royalties.

The overarching point is that industry already is a significant contributor to the federal treasury – more than most sectors. The better idea to raise revenues for government is pro-development policies, including tax reform, that foster increased industry activity to generate more tax receipts, rents and royalties.

An analysis by Wood Mackenzie found that pro-development policies – increased access, commonsense regulation, more leasing (onshore and offshore) and more efficient permitting processes – could grow cumulative government revenues by $111 billion by 2025. Such policies also could greatly increase energy output, job creation and economic growth.

Shortsighted, constraining policies, including higher energy taxes, could reduce government revenues by $260 billion on a cumulative basis by 2025, Wood Mackenzie found.

The right course – for U.S. energy, economic growth and security – is to sustain and extend America’s energy renaissance with policies that encourage safe development, while also increasing revenues to governments at all levels.

See other posts in the “100 days” series, on our energy foundation, the Renewable Fuel Standard, consumers and the economy, hydraulic fracturing.