Obama Recycles Old Plan to Tax Oil and Gas

An energy plan that relies on punishing some and rewarding others isn't "policy" – it's politics.

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Senate Budget Committee staff members hand out copies of Obama's proposed federal budget on April 10, 2013.

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

Whatever else you can say about the Obama Administration's energy policies, you have to give it credit for consistency and perseverance. The White House consistently misrepresents tax deductions and other provisions as "subsidies." And it perseveres in its years-long, disastrous campaign to raise tens of billions in new taxes on America's domestic energy producers.

As my colleague Demian Brady at National Taxpayers Union's research affiliate pointed out in a recent analysis, "If the Obama Administration was out to prove its commitment to recycling, it has certainly done so with the Fiscal Year 2014 budget. Washington may have been abuzz over the few ‘new' ideas contained in the latest package from the White House, but on closer inspection taxpayers will find many of the same old fiscal proposals that have ignited controversy in prior years."

You'd think from listening to the president and his fellow tax-hikers in Congress that America's oil and natural gas companies, collectively employing more than nine million Americans, were on some sort of dole from the U.S. Treasury. Nothing could be further from the truth.

[Check out our editorial cartoons on President Obama.]

For starters, the U.S. oil and gas industry pays an average tax rate of 41 percent, vastly higher than the 26 percent average paid by other S&P companies. Out of the 10 largest taxpayers in corporate America, three are oil companies. Collectively, the major oil producers paid $96 billion in taxes in the most recent year. Looking at it another way, energy companies paid $3 in taxes for every dollar of profit.

But that's not enough for the White House. The Fiscal Year 2014 blueprint unveiled by President Obama calls for new taxes variously estimated to run from $44 billion (Wall Street Journal) to $90 billion (American Petroleum Institute). These are over and above that eye-popping 41 percent rate.

[See a collection of political cartoons on the budget and deficit.]

Ironically, there seems to be no consideration for the consequences of such massive tax increases, even for government itself. Repealing provisions for the oil and gas industry would reduce the industry's ability to compete abroad and invest at home, ultimately resulting in thinner coffers for the Treasury. According to a 2011 study by Professor Joseph Mason of Louisiana State University, the tax hikes would result in an $83.5 billion reduction in long-term revenue for just two of the provisions earmarked for elimination – the dual capacity credit for taxes paid to foreign governments and the Section 199 manufacturers deduction.

Let's be clear. We're not talking about "taxpayer subsidies" and we're not talking about provisions in the Tax Code that are unique to the energy industry. With a few exceptions, at issue are ordinary business deductions (some available to all other industries) and cost recovery measures which tend to have equivalents in other lines of business.

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

For the sake of a robust recovery, policymakers must stop singling out successful industries and successful companies for harsh tax increases. By all means, let's have a discussion about comprehensive tax reform in Washington. But "comprehensive" is the operative word – we must aim for a simplified tax code across the board that incentivizes economic growth and job creation.

The United States is now experiencing a jobs boom in the energy sector, largely driven by the development of "tight" shale oil and natural gas. Associated with this activity has been a massive investment in transportation and processing infrastructure. By 2015, the shale boom will be responsible for 2.5 million jobs, according to a study co-sponsored by the U.S. Chamber of Commerce and energy consulting firm IHS. Last year alone, shale energy was responsible for $62 billion in tax revenue.

An energy policy that relies on punishing some and rewarding others isn't "policy" at all – it's politics. A steady course of moderate taxes for everyone, prudent spending restraint, and a sensible regulatory environment for energy development can lead to long-term prosperity. That prosperity includes more opportunities for families and more sustainable revenues for governments.

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