We Need Tax Reform, Not More Energy Taxes

Raising taxes on domestic energy will cost the United States jobs and actually add to the deficit.

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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.

How quickly the shift between rhetoric and reality can happen in Washington. Just weeks ago President Obama extolled the importance of broadening U.S. energy development in his State of the Union address. Now the White House appears to be already going back on the president's newly professed "all in" approach to energy policy.

Pundits forecast that the administration's upcoming Fiscal Year 2013 budget proposal—scheduled to be submitted to Congress on Monday, February 13—will push for targeted tax hikes on American gas and oil companies. The president has included these very measures in every single preceding budget proposed during his tenure. Yet, they would only exacerbate the economic problems we're desperately trying to solve.

According to analysts, the United States is the most energy rich country in the world. Attributable principally to natural gas developments, like that of the Marcellus Shale (the second largest natural gas field in the world), America became a net exporter of energy in 2011 for the first time in years. That progress is beneficial for Americans from every corner of the country and across all industry. Harnessing our resources creates jobs, generates tax revenues, attracts investment, and enhances our energy security.

[Check out U.S. News's On Energy blog.]

It is especially unsettling then to see the president call for a selective $41 billion tax hike on America's traditional fuel sector, one which has directly added over 20,000 new jobs since the start of the recession while overall U.S. employment has dropped drastically. Government economic modeling shows that these higher taxes would result in 155,000 lost jobs, $341 billion in lost economic output, and a net loss of $53.5 billion in tax revenue. And those are highly conservative estimates.

Economists working at the World Bank and International Monetary Fund know that it is possible for countries to raise revenues by means other than merely manipulating tax rates. Such alternative policies expand the economic pie rather than merely taking a bigger slice for government.

[See a collection of political cartoons on the economy.]

One candidate is to open up development of natural resources. In America's case, that could include the significant oil and gas reserves that lie under the Outer Continental Shelf        just off our coasts. The Obama administration previously planned on opening many of those areas before backtracking on its policy in 2010. My 2009 analysis found that the long-term economic effects of such a policy would include 1.2 million jobs, $273 billion annually in additional output, $70 billion annually in wages, $18.7 billion annually in state and local tax revenue, and $69 billion annually in federal tax revenue and royalty payments.

There are many other such candidates.

It is now routine for countries step up to the challenge of growing their economies through institutional reform in the style popularized by the Nobel Prize-winning work of Douglass North. The United States can, too. But identifying and addressing such reforms requires staunch long-term commitment and courage.

To the extent that opponents will argue that such an approach will only yield long-term benefits, I argue that the long-term begins now.

  • See a collection of political cartoons on energy policy.
  • Read the U.S. News debate on the flat tax.
  • Read Mort Zuckerman on America's Energy Future