Pete Sepp is executive vice president of the National Taxpayers Union.
"Trickle-down economics" was a cynical phrase that media mavens enthusiastically perpetuated throughout the 1980s to snidely describe the Reagan administration's policies toward tax reduction, wealth creation, and employment. Reagan's record was far from perfect—after all, deficit spending during several years of his term in office crept above 5 percent of gross domestic product. Though opinions vary on how poorly our current president's record on job creation compares to Reagan's, on several other scores Barack Obama's performance has been unarguably worse. As a share of economic output, the federal budget deficit this year will be higher by about half than at the same point in Ronald Reagan's presidency. And then there's tax policy, specifically the Obama administration's relentless, discriminatory pursuit of the U.S. oil and gas industry.
Just two of the White House's destructive moves in this area have been plans to take away the widely available Section 199 deduction for job creation, but only for certain oil and gas firms, and to strip these same companies of "dual capacity" credits that help to take the sting out of double-taxation on earnings abroad. But while these highly technical sections of the law may not be known to all Americans, they would have "trickle-down" effects, as a just-released analysis from economist Diana Furchtgott-Roth of the Manhattan Institute makes crystal clear. Using share ownership data from the Securities and Exchange Commission, she determined that the victims of these tax hikes would not be corporate fat cats, but rather millions of investors trying to plan for a secure retirement:
- Among the five largest oil companies studied—Exxon Mobil, Chevron, ConocoPhillips, Occidental, and Andarko—ownership of stock among officers and directors ranged from a low of 0.11 percent at ExxonMobil to a "high" of 1.4 percent at Occidental.
- Mutual funds and other entities through which Americans commonly invest occupy much of the top 15 institutional holders of shares in each company. For example, Vanguard, State Street Corp., and Capital World Investors account for more than a 12 percent ownership stake in Chevron by themselves.
The author also noted that all told, 31 percent of U.S. oil and gas company shares are owned by private or government pension plans. These shares make up a high-performing proportion of pension fund portfolios. New York state's two large pension plans (with more than 1.2 million members) counted an average of 5.5 percent of their assets in oil and gas between 2005 and 2009; yet, those holdings delivered 21 percent of the funds' total return over that period.
As Furchtgott-Roth sums it up:
All these tax increases would reduce the profitability of American companies, hurting American shareholders. Foreign companies would win out in bidding wars for all phases of petroleum development because their tax burdens would be lower. This would not help Americans, who own substantial shares in oil companies in their savings portfolios.
America's retirees already face daunting challenges to their financial security, thanks to other wrong-headed federal policies about to take effect. Higher capital gains tax rates, greater exposure to the Alternative Minimum Tax, and (in a few short years) the loss of value or eligibility for the medical expense tax deduction are all on the horizon unless Congress acts to change direction. If the administration and its congressional allies get their way by imposing higher taxes on oil and gas, the squeeze on seniors' investment returns will only tighten—ironically, perhaps even impacting the government revenues that could have been realized under more vigorous financial markets. This kind of trickle-down impact is the last thing Americans need while our country is already awash in bad fiscal policy.