Tax Hike Plan Could Dim One of Economy's Bright Lights

Mark Green
Posted December 17, 2013

Last month we made some points on a Senate proposal that would impact America’s oil and natural gas industry with higher taxes and costs. Research has shown that delaying industry’s ability to write off intangible drilling costs likely would mean fewer wells drilled, lost jobs and lower energy production. Doing away with the “last-in, last-out” (LIFO) accounting method used by a number of energy companies would require them to redirect cash or sell assets to cover tax payments.

Now API has been joined by more than a dozen other organizations – representing energy producers, refiners, supporting servicers, equipment manufacturers, marketers and retailers – in challenging proposals that could hinder an industry that already sends $85 million a day to the U.S. Treasury.

In a letter to members of Congress the groups say that while efforts to make the tax code less complicated and more competitive are good, raising energy taxes and increasing costs will work against greater industry investment and activity that would provide broad benefit to the U.S. economy. They write:

Our concern is that the proposals … will take cash away from capital-intensive businesses like ours and significantly reduce future domestic investment. In addition, proposals to extend depreciable lives and eliminate valid, long standing accounting methods, like LIFO, will also significantly hurt energy businesses seeking to grow and invest in new capital projects.

The groups argue that shifting cash from private investment is at odds with policies that support and encourage domestic investment and job creation. They note that recent polling shows voters reject tax policies that could decrease energy investment, negatively impact the job market and drive up energy costs for consumers. They write:

Throughout the economic downturn, America’s oil and natural gas industry has provided one of the few bright spots as the economy struggles toward recovery. The industry has invested hundreds of billions of dollars to develop our nation’s oil and natural gas reserves, expand our refining capacity and develop innovative new technologies to meet the energy demands of a growing economy. This investment has created tens of thousands of high paying jobs and billions of dollars in new revenue for the government. These are exactly the types of investments tax policy should encourage and support.

And:

Our industry is poised to make even greater capital investments in domestic energy projects all across the United States, generating jobs and revenues for local communities throughout the country. We must have a tax code that not only encourages growth in such investments, but allows us to continue our track record of creating jobs, growing the economy and strengthening our energy security.

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

Provisions that result in higher taxes and costs are the wrong choice for growth, jobs and energy production.