Obama and Reid’s Energy Tax Puts Ideology Above Economics

Obama's tax proposal would hurt American consumers and endanger the more than 9 million jobs supported by this portion of the energy sector.

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Pete Sepp is executive vice president of the National Taxpayers Union.

As many Washington observers know, keeping up with the latest chatter from our political class while keeping down breakfast can be challenging. It requires accepting a certain disconnect on the part of public officials between their words and their deeds. Still, Senate Majority Leader Harry Reid is the latest figure in our nation's capital who seems to be suffering from an especially serious case of "Do as I say, not as I do."

Over the past few weeks, Reid has been hammering away at Senate Republicans for "obstructing" a transportation funding bill and conspiring to "waste time on unrelated nongermane ideological amendments." As my organization noted, both the House and Senate bills had flaws, some made better, others made worse, as they headed to the floor of their respective chambers.

"Nongermane" is a term that sets off parliamentary alarm bells, but words like "unrelated" and "ideological" involve more subjective assessments, often depending on who has the gavel and who wants to prove a point. Which is good reason for leaders of both parties—in this case Senator Reid—to choose their language carefully.

[See a collection of political cartoons on energy policy.]

For example, Reid has shown nothing but support for President Obama's highly ideological push to make the elimination of some so-called oil and gas "subsidies" a precondition to any debt deal, which lawmakers hope to pass this summer.

As jaded as one may be, the stark contrast between the senator's recent vitriol and his warm embrace of President Obama's plan to selectively raise tax rates on American energy firms is difficult to digest. Far more important, however, than queasy stomachs is the effect President Obama's politically convenient tax scheme could have on the American economy and jobs.

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

What the president fails to mention about his initiative is how several key elements would selectively prevent our oil and gas firms from accessing credits and deductions available to other U.S. industries—a blatantly political move which, as a side note, would set a tax policy process already marred by arbitrary behavior on an even more erratic path.

Obama's plan would eliminate Section 199—a provision to encourage domestic manufacturing and provide modest relief from high corporate tax rates—but just for oil and gas companies. A "dual capacity" credit meant to ensure U.S. companies aren't double taxed on income earned abroad is also on the chopping block.

A 2010 Congressional Research Service report found that proposals similar to what the administration is putting forth right now "may have the effect of decreasing exploration, development, and production, while increasing prices and increasing the nation's foreign oil dependence." Other studies have put a finer point on the matter. One by Louisiana State University economist Joseph Mason found that repealing just those two provisions for oil and gas would trigger "extensive economic losses to the U.S. economy for the next decade, including $341 billion in decreased economic output, almost $68 billion in wage cuts, and initial losses of over 154,000 jobs in 2011."

[Read the U.S. News debate: Is Obama's Corporate Tax Plan A Good Idea?]

Daniel Yergin of IHS Cambridge Energy Research Associates warned in a study from 2010 about the fallout from short-sighted tax hikes on oil and gas this way: "The unintended consequences of proposed changes would likely accelerate the shrinking position of U.S. companies internationally, which would be bad both for the U.S. economy and for energy security."

When all is said and done (an often contradictory phrase inside the Beltway), President Obama's proposal would hurt American consumers and endanger the more than 9 million jobs supported by this portion of the energy sector—that's quite a costly proposition in a town where talk is supposedly cheap.

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