And The Answer Is ... Energy

Mark Green
Posted August 15, 2011

Like the kid at school with his hand in the air, trying to get the teacher's attention, America's energy companies are trying to catch the administration's eye as it casts about for job-creation ideas. The correct answer is right here in the first row: energy.

Last week President Obama said job creation isn't that complicated:

"There are no challenges that we're facing that we don't have the solutions to. We know what to do. ... It's not rocket science. And it doesn't require us to decimate the things that we know are going to help us grow and become competitive."

The president's right. It's not rocket science, though at times the administration makes it seem like something akin to alchemy - proposing indirect measures like tax credits, grants and patent reform - when simpler, faster and more effective options are available. Such as tapping actual shovel-ready projects like the proposed Keystone XL pipeline and permitting greater resource access that would lead to broad job creation from the energy sector. Victor Davis Hanson writes for National Review Online:

"There are vast new finds of natural gas, oil, and tar sands offshore and in the American West, the Dakotas, Pennsylvania, New York, and Alaska. This natural wealth represents hundreds of billions of dollars of savings in imported-energy costs and millions of new American jobs. Instead of lecturing about tire pressure and car tune-ups and encouraging people to trade in clunkers, the president could rally the country to go all out right now to develop its burgeoning fossil-fuel resources to supply our needs while we wait for the development of future green energy."

The fact is the oil and natural gas industry contributed $476 billion to the economy last year and is poised to make a similar contribution this year. Opening access to U.S. oil and natural gas reserves would be a big part of an energy stimulus, resulting in jobs, economic growth and more revenue to government.

At the same time the country would move toward a more secure energy future, one in which domestic sources and Canada could supply 92 percent of our liquid fuel needs by 2030.

The industry has its hand up and waits to be called. Unfortunately, the administration seems not to notice. Instead, the president this week repeated his call for higher taxes on a few energy companies, which research has shown would result in job losses, less government revenue - and less energy.

In that context, Republican presidential candidate Mitt Romney's recent corporations-are-people-too riff on the campaign trail is instructive. Romney made the point that taxes on corporations ultimately hit real people. Reuters' James Pethokoukis fleshes out the concept here. The Washington Post's Brad Plummer blogged:

"Some economists, like Greg Mankiw, argue that (a corporate tax) falls mainly on ordinary workers. Mankiw has cited, for instance, a 2009 Oxford study of nine European countries that concluded that 'a substantial part of the corporation income tax is passed on to the labor force in the form of lower wages.' (The study goes on to suggest that 'in the long run a $1 increase in the tax bill tends to reduce real wages at the median by 92 cents.') Given that Mankiw is advising the Romney campaign on economic issues, Romney would presumably agree. That's hardly the consensus, though. Princeton economist Uwe Reinhardt has noted that economic models are getting increasingly more sophisticated -- trying to account for factors like how easy it is for different sectors to substitute labor for capital. He points to a 2010 review of these newer models by the Congressional Budget Office, which concluded that about 60 percent of the corporate tax ultimately falls on the owners of capital."

For the sake of argument, we'll use Reinhardt's model: 40 percent of the administration's proposed energy tax increase would fall on industry employees (real people). The other 60 percent would be borne by the "owners of capital." But who are they?

Here's who: We know that 29.5 percent of oil company stock is owned by mutual funds, owned by real people; 27 percent by pension funds (real people), 23 percent by individual investors (real people), 14 percent by IRAs (real people), 5 percent by individual investors (real people) and 1.5 percent by corporate management.

So, using the CBO's numbers and these ownership stats, for every $100 in higher taxes on oil and natural gas companies, just 90 cents would be borne by corporate management. The other $99.10 will fall on "regular" folk, the millions of Americans who work for or have invested in these companies in one way or another - which is why the administration's tax proposal is so misguided.