The People of America's Oil and Natural Gas Indusry

Americans Clear on Higher Energy Taxes

Mark Green

Mark Green
Posted October 29, 2013

Here’s what Americans are thinking about tax reform discussions that potentially could include hiking taxes on U.S. oil and natural gas companies, according to a new Harris Interactive poll:

  • 56 percent agree that increasing energy taxes could negatively impact the U.S. job market and hurt the economy.
  • 69 percent agree that increasing energy taxes hurts everyone because those tax increases could drive up energy costs for consumers.
  • 56 percent oppose tax code changes that could decrease investment in energy production and reduce energy development here in the U.S.
  • 81 percent agree that politicians should solve the country’s budget issues without hurting consumers or the economy (see chart).

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This is what we call a clear signal: Americans see a strong link between reliable, affordable energy and the quality of their lives and the health of the overall economy. They object to policies – like tax increases on a robust, productive oil and natural gas industry – that could disturb the link by making energy development costlier and the energy sector less productive.

API’s Stephen Comstock, director of tax and accounting policy, discussed the survey during a conference call this week:

Whenever the debate in Washington turns to spending and debt, a few politicians repeatedly haul out proposals for punitive tax increases on oil and natural gas. This is not a popular idea, according to our polling which found that 81 percent of voters nationwide believe politicians in Washington should solve the country's budget issues without raising energy taxes. This may be because Americans naturally see a connection between energy taxes and energy prices.

Comstock said many Americans realize that the oil and natural gas industry has been a bright spot in an otherwise slow-growth economy, reflected in U.S. Energy Information Administration data showing the industry created jobs 40 times faster than the rest of the private sector from 2007 to 2012.

Yet that doesn’t keep some in Washington from talking about targeting industry for tax increases – such as proposals to repeal the deduction for intangible drilling costs (IDC). Comstock:

Cost recovery measures, like the deduction for intangible drilling costs or IDCs, are available to every business in America. The IDC deduction allows oil and natural gas companies to recoup labor and other costs spent on drilling a well. By improving cash flow, the deduction allows companies to invest more money into creating jobs and producing the energy that keeps our economy running. For some companies in the retail and service sectors, reduced marginal tax rates might outweigh the loss of deductions that allow a business to recover costs. But for capital-intensive industries like energy and manufacturing, cash flow and cost recovery will typically be very important factors in how they decide to invest in their operations.

He pointed to a study released this summer that estimated IDC repeal could cause 190,000 Americans to be unemployed next year, increasing to 265,000 lost jobs over a decade. Repeal could mean fewer wells drilled, $407 billion in decreased investment and less energy. Domestic oil and natural gas production would fall 14 percent below current expectations after 10 years, the study said. Comstock:

It’s no secret that policymaking in Washington can sometimes be a mess, with unwelcome consequences that were never intended. In the same way, tax reform that damages cost recovery measures like IDC in order to pay for lower rates could unintentionally hit the brakes on America’s energy and manufacturing renaissance. … We in the past have always been in the crosshairs, whether it’s a grand bargain, a small bargain, a mini-bargain, an off-to-the-side bargain. … You have both of these – a sort of grand budget as well as tax reform out there looming – so we felt we could provide this kind of (polling) information back into both those processes.

The right path to increasing revenue to government is to grow domestic oil and natural gas production, which could generate more than $127 billion in additional, cumulative revenue by 2020 and more than $800 billion by 2030, according to Wood Mackenzie. Comstock:

Just by allowing our industry to do what we do best, government collects average revenues of $85 million a day. We pay our fair share and then some while providing energy to families and businesses and supporting millions of jobs throughout the economy. If the federal government allowed greater access to domestic oil and natural gas resources – which our polling shows Americans strongly support – it could lead to even more revenue for the government and more energy and good-paying jobs for American workers.

This Americans also get, the new Harris survey said, with more than 90 percent saying that developing more energy here at home is important – a result that’s consistent across age, gender and party identification. Another crystal-clear signal.

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.