Joseph Mason is the Moyse/LBA Chair of Banking at the Ourso School of Business at Louisiana State University and a senior fellow at the Wharton School of the University of Pennsylvania.
Together, America's housing and energy sectors account for nearly a quarter of our economy. In light of that reality, any plan aimed at spurring growth would be well served to bolster those two industries—a fact worth considering when tuning into President Obama's State of the Union address.
Let's start with housing. The deterioration of underwriting standards that led to the bottom falling out of the housing market through 2008 was one of the most important factors leading to the current global recession. Government efforts to increase home ownership rates fueled that deterioration, resulting in higher risk to Fannie Mae and Freddie Mac. Simply put, we stopped focusing on whether people could afford the homes they were buying.
Continuing to delay foreclosures reflects the same kind of wishful thinking. The Obama administration's programs to prevent foreclosures, called HAMP, and to refinance loans, known as HARP, have only proven that a delay can't turn an unaffordable mortgage into an affordable one. Moreover, kicking the foreclosure problem down the road creates uncertainty that discourages investment—and delays our desperately needed economic recovery.
A similar kind of government-induced uncertainty threatens to hamper our energy sector.
Thanks largely to our natural gas reserves, analysts have recently dubbed the United States the most energy rich country in the world. Developing energy resources creates domestic jobs, stabilizes fuel costs, attracts investment, and generates vast wealth in America. Additionally, taxes, rents, and other extraction fees act as a steady funding supply for federal coffers.
However, multiple developments at the federal level may obstruct this vast potential. The administration has sent mixed signals regarding U.S. natural gas production. Additionally, the White House continues to call for selective tax hikes on U.S. oil and gas firms. The push to eliminate deductions for our traditional energy industry—deductions available across the board to all sectors of the economy—goes against the president's pledge to both simulate domestic job creation and strengthen the competitiveness of American firms operating in the global market.
An analysis performed using the government's own economic modeling shows that imposing this higher tax burden on U.S. oil and gas firms would result in 155,000 lost jobs, $341 billion in lost economic output, and a net loss of $53.5 billion in tax revenue. Far from a jobs plan or trade boost, these tax increases would only exacerbate our country's economic woes.
With national unemployment hovering around 8.5 percent and an election less than 10 months away, it will remain interesting to see whether the president changes his course on housing, energy, and other major policy issues or continues to adhere to business as usual.