Lame Duck Congress's Lame Energy Tax Idea

Washington needs to stop punishing politically convenient industries to avoid doing their real job of reducing federal spending.

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An oil feed pipeline at the BP Endicott field in Alasks, which is benefiting from oil revenues.

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

The post-election "lame duck" flurry has begun in Washington, and the imagery is fitting. A number of bad ideas continue to waddle around the nation's capital, providing a great deal of noise and flying feathers at a time when reasonable deliberation is needed more than ever.

A case in point is the return of stale old quackery over boosting taxes on one of the most promising parts of our economy: energy production. During campaign season, Republican presidential candidate Mitt Romney and House Ways and Means Committee Chairman Fred Upton both said they'd be willing to explore modifying tax deductions and credits for businesses, including oil and gas companies, as part of an across-the-board corporate tax reform effort that emphasized broadening the tax base while reducing tax rates. This sensible approach, applied to the entire corporate tax system, could benefit our economy by making complex, pick-winners-and-losers tax policy less of a likelihood in the future.

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

Unfortunately, some saw this as a signal to resurrect a deceptive and destructive ploy: discriminatory tax policies toward oil and gas companies, all for the goal of raising some short-term revenues to cover additional deficit spending.

America has been down this road many times before, and the same dead end lies ahead. In October 2011, the National Taxpayers Union warned members of Congress who were deeply engaged in "super committee" debt-reduction negotiations that:

[F]ar from being a mere collection of "giveaways" to oil and gas firms, the provisions of law at issue include those available to companies and industries of all kinds, chief among them the Section 199 domestic production activities deduction and the "dual capacity" credit against taxes paid to other entities on operations abroad. Repealing these commonly-used laws for a subset of industry majors will not improve the efficiency of our Tax Code. Instead, it will raise taxes on an industry that already pays $86 million per day in taxes to the state and federal government.

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

Though the chorus of voices opposing this misguided policy may sound like a broken record, we must keep speaking out until its supporters in Congress stop their off-key messaging. The Section 199 deduction, for example, is already restricted for oil and gas firms, which can take a 6 percent write-off compared to the 9 percent that other companies get. Fully nine out of every 10 dollars raised by a plan popular with some congressional Democrats—the "Repeal Big Oil Tax Subsidies Act"—would come from stripping certain oil and gas companies of Section 199 and dual capacity protections.

Whether such parts of the law could be streamlined for all businesses in favor of a simpler system featuring low rates is cause for rational consideration; punishing politically convenient industries in order to avoid doing the heavy work of eliminating unnecessary federal spending programs should not be elevated to such a level of legitimacy.

Ironically, the would-be tax-hikers are likely to be disappointed in their quest to squeeze more money from "Big Oil." A study for the American Energy Alliance by Louisiana State University's Joseph Mason determined that scrapping Section 199 and dual capacity for major oil and gas companies would in the long run lead to billions of losses in revenues to governments due to reduced economic activity and lower royalty payments. A recent article for Forbes  by CNBC's Lori Ann Larocco, which quoted this writer as well, summed up the situation aptly:

[See a collection of political cartoons on gas prices.]

One of the biggest game changers in the global economy has been the energy discoveries in the United States. But even with the predictions that the U.S. will take the number one spot in oil production by 2020, shipping leaders are keeping a close eye on the political uncertainties related to budgets, taxes, and the unintended consequences of regulation.

This instance of "bird on bird crime"—a possible lame-duck tax hike killing the goose that's laying the golden egg—isn't the only example of bad policymaking in Washington. Just last week, the Environmental Protection Agency slammed the door on providing relief to consumers by announcing it would not act to suspend the Renewable Fuels Standard that is pushing so much of the nation's abnormally high-priced corn crop to be converted from food to ethanol fuel. This space has previously commented on the terrible illogic behind the ethanol mandate, but my colleague Nan Swift said it best when noting that because ethanol "hasn't helped with the high cost of gasoline at the pump … the EPA and [the Renewable Fuels Standard] in particular have made not just this year's turkey and pumpkin pie cost more, but also the trip over the river and through the woods."

Ducks, geese, turkeys … whatever the fowl, it seems that these days public officials have hatched far too many "lame" ideas that will hobble consumers and taxpayers alike.

  • Read Daniel Simmons: Government Must Step Aside for Energy Boom
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