The People of America's Oil and Natural Gas Indusry

Study: Choose Access Over Higher Taxes

Mark Green

Mark Green
Posted July 13, 2011

A new academic study has this advice for the administration on its proposal to raise taxes on energy companies: Don't do it - go with increased oil and natural gas production instead.

Louisiana State University Professor Joseph Mason says lost economic output, lost jobs and reduced tax revenues would result if the administration succeeds in eliminating a pair of tax treatments now available to oil and natural gas companies - ironic since the administration claims hiking taxes would generate revenue and help lower the deficit. Specifically, higher energy taxes would mean:

  • $341 billion in lost economic output, 2011-2020
  • 155,000 jobs lost in 2011 and 115,000 each year thereafter until 2020
  • $68 billion in lost wages, 2011-2020
  • $83.5 billion in reduced tax revenues to government

According to the report funded by the American Energy Alliance, these would result if oil and gas companies are barred from using the Section 199 domestic manufacturing deduction and from claiming a foreign tax credit on their U.S. tax returns under dual capacity rules. The moves purportedly would generate $30 billion in revenue over 10 years. Not so:

"The expected contraction in tax revenues arising from decreased business activity is far larger than the expected revenue increases anticipated by the Treasury. As a result, there is no basis for classifying changes to Section 199 and Dual Capacity as deficit reduction measures."

The report's alternative scenario, one in which the administration encourages exploration and production on the U.S. outer continental shelf, would result in higher economic growth, jobs and tax revenue:

  • $73 billion annual growth in the short-run exploration phases of development, $275 billion annually in the long-run production phases
  • $16 billion annually in wages short-term, $70 billion long-term
  • $11 billion annually in federal tax revenue short-term, $55 billion long-term

And, of course, more energy. U.S. estimates that the outer continental shelf holds 86 billion barrels of recoverable oil and 42 trillion cubic feet of recoverable natural gas. Mason writes:

"Encouraging exploration and production in the OCS represents a highly effective means of increasing Federal tax revenues generated by the oil and gas industry while simultaneously stimulating the economy."

The study squares another report released this week by API and the National Ocean Industries Association, showing dramatic increases in jobs, economic growth and tax revenues if the administration would simply allow oil and natural gas exploration in the Gulf of Mexico to return to levels before last year's moratorium on deepwater drilling.

Both reports underscore a Wood Mackenzie study from earlier in the year comparing the outcomes of increased production access vs. higher energy taxes.

Additional Resource:

API's Jack Gerard discusses energy at The Washington Times

ABOUT THE AUTHOR

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.