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.
Americans are proud of pioneering, successful domestic companies. For example, the president himself touted Apple's Steve Jobs as an innovator in his latest State of the Union address. Vice President Joe Biden picked up on this theme earlier this week, using the company as an example of America's economic superiority over China.
Americans want U.S. companies to be successful, to be global leaders, and to push the limits of technology. And why shouldn't this be the case? These businesses create tens of thousands of jobs and untold wealth in the process. But, somehow, our political leaders have been slow to show our oil and gas firms the same widespread support and recognition as the Apples of the world.
Former Rep. Harold Ford Jr. summed it nicely when he commented earlier this month, "We get excited in this country when we talk about Apple. It's a great U.S. company. But ExxonMobil's a great U.S. company as well, and we seem very shy to talk about."
In the same speech in which President Obama praised Jobs, the creator of the most profitable company in the United States, he also called to single out the U.S. oil and gas industry for tax increases because it "has rarely been more profitable." How can profit be good in one instance and bad in another? This double standard for the oil and gas industry is born out of naivety regarding what exactly these companies do.
Despite what many think, oil companies do not set gasoline prices. The price at the pump is influenced by a variety of factors, including:
- the international price of crude oil
- the cost of refining and marketing the product
- state and federal taxes
- the cost of distributing the product to market
Global supply in relation to demand sets the cost of crude, which determines 76 percent of the final pump price.
While federal policies have made large quantities of domestic resources unavailable off both coasts, in Alaska, and in portions of the Gulf, innovation by U.S. drillers has maximized the resources that are available.
From deepwater and horizontal drilling to advances in hydraulic fracturing to extract the nation's vast shale gas reserves, U.S. companies have been world leaders in energy production advancements. As the president has noted, improvements in shale drilling alone "will support more than 600,000 jobs by the end of the decade." As it turns out, innovative oil and gas firms give an incredible amount back to the economy.
ExxonMobil, for instance, invested $72 billion in the U.S. economy in 2011, supporting 30,000 employees and countless additional contractors and service providers. Despite this considerable investment and the positive impact it had on the economy, the president has been painting them and other oil firms the villain. This discriminatory bent is accentuated by the different tact the White House takes with successful players in other sectors.
On January 24, President Obama noted, "Ford is investing billions in U.S. plants and factories; and together, the entire (auto) industry added nearly 160,000 jobs." The huge impact this industry has on the economy pressured Washington to bail out the auto industry with taxpayer dollars in 2008. But while the president applauds using taxes to save prolific job creators in one instance, he is trying to wield the tax code to punish an important U.S. industry in another.
But Apple? Apple released an economic study saying that while it directly employs 47,000 people in the United States in its development facilities and retail stores, it allegedly "created or supported" 514,000 other American jobs. Interestingly, this study was in response to pressures on the company to discuss its employment practices earlier this year. A January New York Times article reported:
Apple employs 43,000 people in the United States and 20,000 overseas, a small fraction of the over 400,000 American workers at General Motors in the 1950s, or the hundreds of thousands at General Electric in the 1980s. Many more people work for Apple's contractors: an additional 700,000 people engineer, build and assemble iPads, iPhones, and Apple's other products. But almost none of them work in the United States … Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.
According to Mr. Jobs, "Those jobs aren't coming back."
Government modeling shows that just two of the president's desired tax increases would immediately eliminate 155,000 U.S. jobs in both the energy industry and related fields which benefit from their success like finance and healthcare. These job losses have costs. The reduction in government revenue from oil companies, which already pay an estimated $85 million daily, would equate to a net decrease of $53.5 billion in revenue over ten years. Not exactly a flawless revenue raising scheme.
Productive American companies are good for the U.S. economy. Whether it's Apple, Ford, or ExxonMobil, our leaders in D.C. should encourage success. But that's not what we are seeing. Instead, the president applauds companies for their productivity in one instance, and then proposes repealing the tax deductions that enabled this productivity when it applies to oil and gas firms. This flawed logic could push more U.S.-based companies in the direction of Apple, outsourcing jobs to nations like China with a more sensible tax structure.