The People of America's Oil and Natural Gas Indusry

Voters Reject Energy Taxes

Jane Van Ryan

Jane Van Ryan
Posted November 30, 2010

American voters understand that higher taxes are the wrong prescription for domestic oil and natural gas development. In an election-night poll conducted by Harris Interactive and commissioned by API, 60 percent of voters opposed a tax increase on the oil and natural gas industry, and 54 percent said an increase could destroy jobs.

"Experience and instinct tell them tax hikes harm job creation, and the research agrees," said API's President and CEO Jack Gerard in a news release.

The administration and some members of Congress have proposed raising taxes by eliminating incentives passed by Congress to encourage U.S. oil and natural gas production. An API analysis of a Wood Mackenzie study shows eliminating only the domestic production activities and intangible drilling cost tax deductions could destroy about 58,800 jobs in 2011, rising to 165,000 in 2020. A separate study by Louisiana State University found that raising U.S. taxes on the industry's foreign-earned income could cost the economy 154,000 jobs in 2011.

In recent years, some elected officials have targeted the U.S. oil and natural gas industry for tax hikes to pay for their favorite government programs. They also have demonized the oil companies and asserted that the companies don't pay their fair share in taxes. Nothing could be farther from the truth:

  • In 2009, U.S. oil and natural gas companies paid income taxes at an effective rate of 48.4 percent, which was 70 percent higher than the effective tax rate of 28.1 percent of the S&P Industrial companies. (Compustat North American Database)
  • Between 2004 and 2008, the major U.S. oil and natural gas producers paid $300 billion income taxes, in addition to another $60 billion in production, sales, use, property and other non-income taxes. (U.S. Energy Information Administration)
  • The manufacturing tax deduction, which is available to all industries, already is one-third lower on a percentage basis for the oil and natural gas industry. Yet some in Congress want to eliminate it completely for oil and natural gas companies only.

Another disparity exists in the incentives provided to renewables as compared to oil and natural gas. According to the EIA's Federal Financial Interventions and Subsidies in Energy Markets 2007, renewable and other electric technologies received more than 22 times as much energy R&D funding. Ethanol and biofuels received a subsidy of $5.72 per million British thermal units (Btus) of energy produced, which was 190 times more than oil and natural gas.

As the Harris Interactive poll suggests, elected officials should not assume that voters don't understand the impact of higher energy taxes on jobs and the economy. Voters know this isn't the time to raise taxes.