More Government Revenue? The Better Oil and Natural Gas Solution

Mark Green
Posted November 13, 2012

There’s lots of talk in Washington about the impending “fiscal cliff” and the federal deficit – naturally prompting discussion of revenue sources. While there could be new attempts to raise taxes on America’s oil and natural gas companies, there’s a much better idea.

There’s a better strategy to increase revenue for government – one that will generate way more revenue than punitive, discriminatory tax hikes that single out one industry, one that will add jobs and produce more energy to make our country more secure: More domestic oil and natural gas development.

Wood Mackenzie’s 2011 study found that with increased access to America’s energy resources, the oil and natural gas industry could generate more than $800 billion in additional cumulative revenue for governments by 2030. Along the way that’s $33 billion by 2015, $126.7 billion by 2020 and $363.2 billion by 2025 – in federal taxes, royalties and lease sales and state taxes and royalties, graphed below: 

Those numbers simply swamp the revenue total usually associated with proposals for higher oil and natural gas taxes – $40 billion over 10 years. And the revenue for government would come without the negative impacts Wood Mackenzie says would result from higher energy taxes – lost jobs, lost revenue and reduced energy production.

We have the energy resources, as this map shows:

By increasing access to areas, onshore and offshore, which are kept off-limits by current federal policy, the oil and natural gas industry could generate that revenue, add 1.4 million jobs and more than 10 million barrels of oil equivalent per day by 2030. Here’s how Wood Mackenzie charts the job growth:

The alternative is a short-sighted strategy that punishes one of our weakened economy’s few robust, job-creating sectors. API’s Khary Cauthen, federal relations senior director, and Brian Johnson, API senior tax adviser, discussed the two approaches during a conference call with reporters. Cauthen:

“With new taxes, U.S. oil and gas projects are less attractive and foreign projects more attractive. That’s an invitation to push American investment and jobs overseas. … Taxes on domestic oil and gas companies would limit new U.S. jobs and, over the long term, also would reduce the revenue U.S. oil and natural gas corporations and U.S. workers deliver to our government. They also would reduce domestic production, which could increase our nation’s reliance on imports and worsen our trade deficit.”

The oil and natural gas industry sends $86 million a day to the U.S. Treasury in income tax payments, rents and royalties. The industry’s effective tax rate over the past six years through 2011 has averaged 44.3 percent – well above the 35 percent general corporate tax rate and well above the rates of most other industries and businesses.

It’s an industry that invests heavily in America – contributing $476 billion to the economy in 2010. In 2011, U.S. oil and natural gas companies owned five of the top 11 spots on the Progressive Policy Institute’s list of the top 25 nonfinancial U.S.-based companies, ranked by their 2011 capital spending inside this country. Johnson noted that last year oil and gas companies were responsible for 15 percent of all the investment in infrastructure made in this country: “We’re the industry that’s continuing to create jobs and drive this economy.”

The oil and natural gas industry is poised to do more. Cauthen:

“The oil and natural gas industry is already an engine of revenue for our nation, and it’s ready to do its part under broader tax reform. Targeted additional taxes on oil and gas are the wrong approach for what’s needed to rebuild our economy and get our fiscal house in order.”

The tax question lines up as another test of President Obama’s campaign commitment to increased domestic oil and natural gas production. Cauthen:

“More development would be good for the economy because of the ability of America’s oil and natural gas industry to create jobs. We’re one of the few industries that created large numbers of them during the recession. And there’s potential for additional, massive new investment in domestic oil and natural gas development, which could create even more jobs.”

The American people recognize what’s at stake. A Harris Interactive survey taken after last week’s vote showed 73 percent favor increased access to domestic oil and natural gas resources, and 94 percent believe more oil and gas is important to America’s energy security. On taxes, 68 percent agree that energy taxes like those on oil and natural gas companies that have been discussed in the past hurt everyone because they drive up energy costs.

As the president and members of Congress discuss options for meeting government’s fiscal challenges, America’s oil and natural gas companies are ready to help through increased activity that will generate significantly more revenues for governments than unfair, targeted tax increases. The pro-growth, pro-revenue approach will help governments while strengthening the economy and making us more energy secure.