Don't Burden the Energy Industry With New Taxes

An increased tax burden will only further prevent economic recovery.

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

Readers of this space know that my organization, National Taxpayers Union, opposes the pick-winners-and-losers tax policies of President Obama and his allies in Congress. Selectively stripping oil and gas companies of provisions that other industries use—like the Section 199 manufacturing deduction and dual capacity credit—amounts to bad tax policy and bad economic policy. After all, the industry has been a proven source of job growth and stable revenues.

As it turns out, many who actually make their living in the latter field would be sympathetic to this cautionary message. How do we know? On December 12, my organization released an open letter to Congress from 185 economists cautioning lawmakers that "allowing the 2001 and 2003 taxpayer relief laws to expire for some or all taxpayers" would "have a significant, negative impact on the economy."

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

The list of signatories to the National Taxpayer Union letter was quite diverse, and included former Congressional Budget Office Director (and current American Action Forum President) Douglas Holtz-Eakin as well as former Office of Management and Budget Director Jim Miller. There were scholars from a variety of academic entities, including the University of Michigan, University of Chicago, University of California--Los Angeles, University of Virginia, Emory University, Georgetown University, Pomona College, and the Wharton School at University of Pennsylvania (affiliations on the letter were listed for identification purposes only). Among those from other institutions were Donald Luskin of Trend Macrolytics, Richard W. Rahn of the Institute of Global Economic Growth, David J. Theroux of the Independent Institute, and David G. Tuerck of the Beacon Hill Institute at Suffolk University.

There's an old joke to the effect that getting just two economists in a room together will produce disagreement over everything from the color of the walls to the temperature level of the thermostat. For that reason, many policy statements to Congress are couched in extremely "safe" language so as to obtain the broadest possible agreement. But in the case of these 185 economists, their words went beyond generalities to matters specifically affecting energy:

Additionally, lawmakers must resist other destructive proposals that would boost effective tax burdens, such as curtailing itemized deductions for higher earners or imposing discriminatory taxes on energy or other industries. Such policies are merely revenue-raising ploys when executed outside the context of comprehensive tax reform that includes correspondingly lower marginal rates. And like other tax increases, they would serve as inadequate substitutes to much-needed spending restraint.

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

Some may contend that the signatories to our letter were likely not thinking about limits on Section 199 or dual capacity for oil and gas companies when reading the paragraph above and deciding whether to lend their name to the National Taxpayer Union statement. This may be a premature assumption, considering the range of expertise among those on our list.

But even accepting such an argument only proves an important point: To economists, the policy, not the politics, is what matters. To them, "discriminatory taxes," regardless of who gets hit, would be a mistake.

The letter goes on to discuss the benefits of where Congress ought to be focusing at this time—shrinking the budget rather than further bloating the Treasury's coffers. But the signers also noted that policymakers need to take a holistic approach to the tax system rather than singling out certain sectors for punishment: "To best foster a strong economy, Congress should ultimately create a simpler system of taxation with a broader base and low rates on income and investment."

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

Such a course doesn't necessarily preclude repeal of laws like Section 199 and dual capacity credits; after all, both are really designed to take the edge off a terrible corporate system that (unlike most other nations) taxes the "worldwide" income of companies and levies the highest marginal rate of any industrial nation. However, public officials must do so in the context of an overhaul that emphasizes simplification across-the-board. When all industries—including oil and gas—are allowed to thrive on a level playing field, consumers, workers, shareholders, and even government treasuries are the winners.

This advice will be especially important in 2013, if Americans are to ever see the robust recovery they deserve. Here's hoping that once Congress gets past, or over, or through, the "fiscal cliff," we'll see more productivity and less posturing on real tax reform.

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