Tax Reform Should Not Punish Oil and Gas Companies

Eliminating tax deductions for U.S. energy companies hikes energy prices and reduces U.S. competitiveness.

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Sen. Max Baucus, D-Mont., is interviewed by the Associated Press, on Capitol Hill in Washington, Thursday, Nov. 16, 2006.

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

This week the Senate Finance Committee initiated a new round of discussion over tax reform that could—under the right circumstances—yield positive results for taxpayers. Chaired by Sen. Max Baucus, a Democrat of Montana, the committee broadly identified four policy objectives: increased job creation, improved U.S. global competitiveness, greater industrial innovation, and more educational opportunities. Now comes the heavy lifting: Public officials must make sure the tax laws are formulated to achieve those ends and not driven by political agendas.

The urgency of the country's economic problems has rarely been as pronounced as it is now. The latest jobs report shows anemic growth last month, adding only 69,000 jobs to the economy.  In the same period, the unemployment rate increased to 8.2 percent, marking the 40th straight month it's remained above 8 percent. Consumer confidence has fallen to its worst level in 8 months and small business optimism remains moribund. All the while, financial turmoil in Europe threatens to spill over into markets here at home.

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

Tax policy can help ensure the United States has the foundation to weather these challenges. For one, it can be a part of a deficit reduction strategy, though not in the way that some tax-hikers in Congress would think. Because our debt predicament is largely the result of expanded federal programs, resolving it will require cutting wasteful spending and modifying tax provisions that don't move the economy forward. By addressing the latter factor, revenue growth will occur as a natural result of economic prosperity. Here, lawmakers need to recognize higher tax rates don't necessarily translate into higher revenues and practice a balanced calculus that closely considers domestic productivity.

Toward that end, lawmakers should ensure the U.S. Tax Code promotes innovation, expansion, and global competitiveness. Taxes should not be used, as we've seen before, to punish certain industries or give a leg up in the private market. This is especially true of the energy sector. Repeatedly, lawmakers have threatened to repeal tax deductions and credits only for oil and gas companies, even though numerous U.S.-based firms in all kinds of sectors claim the very same provisions. At the same time, the government has sunk billions into so-called “green” initiatives, often at taxpayers' expense. Creating such an uneven playing field will cost jobs, hike energy prices, and reduce U.S. competitiveness.

[Read the U.S. News debate: Should the Government Invest in Green Energy?]

The atmosphere within the Beltway is naturally contentious, but the need to make these sensible tax reforms demands that lawmakers act in concert to protect our economy. Fortunately, the Senate Finance Committee's mission has received notable bipartisan support. Both Democrats and Republicans are coming to recognize my organization's long-documented contention that the system has become mired in complexity since it was overhauled in 1986. Now, as the country faces historic economic challenges, they have signaled at least some willingness to work together on sensible solutions. Here's hoping those signals continue to show full speed ahead.

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