The People of America's Oil and Natural Gas Indusry

Seven Reasons to Oppose Higher Taxes

Mark Green

Mark Green
Posted May 5, 2011

Via Dan Mitchell we see this video from the Center for Freedom and Prosperity, offering seven reasons why higher taxes are a bad idea.

1. Tax increases are not neededThe oil and natural gas industry already pays taxes at a higher effective rate than most other industries. As API's Brian Johnson notes:

According to data found in the Standard & Poor's Compustat North American Database, the industry's 2010 net income tax expenses -- essentially their effective marginal income tax rate -- averaged 41 percent, compared to 26 percent for the S&P Industrial companies.

2. Tax increases encourage more spendingThe administration's actual stated reason for increasing energy taxes is for the federal government to spend it on energy technologies it chooses. The oil and natural gas industry already invests heavily in emerging energies including renewable technologies - more than $58 billion from 2000 through 2008 So basically the plan is to tax free-market research and to pay for government-directed research.

3. Tax increases harm economic performance

The Congressional Research Service has this one:

...the tax changes proposed in [the FY2012 federal budget request] would increase tax collections from the oil and natural gas industries and may have the effect of decreasing exploration, development, and production, while increasing prices and increasing the nation's foreign oil dependence.

4. Tax increases foment social discord

Unfortunately, our current energy debate is nothing if not discordant.

5. Tax increases almost never raise as much revenue as projected

Let's start with a Wood Mackenzie look at increasing taxes versus increasing access:

Under the higher taxation scenario, net revenues are estimated to decrease by $128 billion. The negative economic consequences of higher taxes will, in the long run, more than offset any short-term tax revenue gains.

In other words increased taxes will generate less government revenues overall from less economic investment (less royalties and income tax from operations).

6. Tax increases encourage more loopholes

When government picks tax losers it also tends to want to pick tax winners, as Tim Carney explains:

[Obama] calls it a special subsidy that oil and gas drilling is treated like forestry, farming, and mining, while his proposal - simply discriminating against oil and gas - would be actual "special treatment." Obama calls special treatment "fairness" and fairness "special treatment." It's one more reason we should doubt whether he's serious about tax reform. And here's yet another: In addition to the big "loopholes" that he won't change, Obama has created and proposed a bevy of new targeted tax credits that complicate the tax code and distort the economy.

7. Tax increases undermine competitiveness

IHS CERA Chairman Dr. Daniel Yergin has this one:

The competitive landscape in the oil and gas industry is changing, and what we have observed through the data is the relative diminishment of U.S. companies. Taxation systems don't exist in a vacuum in an increasingly-competitive world. The unintended consequences of proposed changes would likely accelerate the shrinking position of U.S. companies internationally, which would be bad both for the U.S. economy and for energy security.

So there you go: Seven reasons why increasing energy taxes would be a bad idea...and the list could easily go on, and on, and on...


Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.