Reject Higher Energy Taxes

Jane Van Ryan
Posted July 27, 2010

As API's Jack Gerard pointed out in a Roll Call op-ed yesterday, several special interest groups are engaged in a campaign against the oil and natural gas industry.

It appears these groups are hoping to use the Gulf oil spill to inflict as much damage as possible on the industry through the imposition of higher taxes. To advance their cause, some groups often claim that the industry is highly subsidized and doesn't deserve tax breaks or deductions.

A frequent target in this campaign is Section 199 of the Tax Code, which encourages job retention and growth in the United States. Congress enacted this provision in 2004 to provide a deduction to taxpayers engaged in manufacturing, production, growing or extraction activities. The deduction is available to ALL U.S. manufacturers, including oil and natural gas companies.

One anti-oil group argues that large oil and natural gas companies should be barred from taking this deduction because a "few years ago, Congress actually redefined manufacturing...so that it included oil and gas production." That's completely false. Section 199 expressly spelled out the activities that were eligible for this wholly new (and broad) deduction. The term "manufacturing" has not been "redefined."

But apparently some in Washington believe that a provision focusing on job creation and retention for all domestic producers should--in this economy--be denied to an industry that supports 9.2 million U.S. workers.

Apparently the goal is to raise more money for the federal treasury. But would that money be used to mitigate the impact of the oil spill? No. Under federal law, BP is responsible for the cleanup.

Losing the deduction would reduce the oil and natural industry's ability to make investments in new jobs, new technologies, in new fuels, in safety improvements and in securing America's energy future. Higher taxes, supported by groups that want to punish the industry, won't help the Gulf or make energy more affordable for Americans. They should be rejected.

Read the briefing paper below for more information about specific tax provisions on the oil and natural gas industry.