Posted January 21, 2014
A new year unfortunately means the same old tired arguments from folks seeking higher punitive taxes on America’s oil and natural gas companies, in this case in the form of a post from the Center for American Progress (CAP), which seeks to simplify the complexity of comprehensive tax reform down to “end special tax breaks for the five biggest oil companies.” So what are these “special” tax breaks they want to end?
Well, the first identified by CAP is the “Section 199 deduction” created in 2004 to spur employment in U.S. manufacturing and is available for all U.S. taxpayers who manufacture in the U.S. So, not special for oil and natural gas companies, and in fact oil and natural gas companies are already singled out for reduced used of the deduction, compared to other manufacturers. The second is the foreign tax credit deduction, which is designed to minimize double taxation and is available to all U.S. companies with operations overseas. So again, not special for oil and natural gas companies. Lastly, CAP wants to end the intangible drilling costs deduction (IDCs), which is a cost-recovery mechanism for oil and natural gas exploration and production expenses that has existed since 1913. While drilling costs are unique to drillers, the deduction of costs is similar to cost-recovery provisions provided to every business, so not special, and as a bonus, IDCs are also not a tax break, as drillers pay the full amount of taxes that are owed.
So right out of the gate CAP is 0 for 3 on “special tax breaks,” proving, as others have, that oil and natural gas companies don’t get special benefits. They also prove that when CAP talks about tax reform, what they mean is that the federal government should levy special, punitive, discriminatory and unfair taxes on just five American companies.
CAP also claims that increasing energy taxes won’t impact the economy, but punitive tax efforts would have significant and immediate effects, on investment and domestic production. CAP would also have you believe that the oil and natural gas industry are light on job creation, even though in 2011 the industry supported 9.8 million jobs, an increase of 600,000 since 2009. Lastly, CAP claims that oil and natural gas companies are slackers in the tax department, which even the New York Times found to be the opposite of true.
We understand that CAP wants more money for government and views higher taxes on energy as the way to get it. But this sort of economic foolishness has been soundly rejected by American voters, with 69 percent agreeing that increasing energy taxes hurts everyone, because those tax increases could drive up energy costs for consumers and threaten the more than $1,200 per household in added disposable income thanks to lower natural gas costs.
The American people understand CAP's flawed economics, and they also understand that there is a better way. Instead of government trying to take a larger slice of the pie, it should let oil and natural gas companies do their job of making the pie larger with increased production of domestic oil and natural gas resources.
That's something American people understand and can get behind, with 73 percent supporting increased access to domestic oil and natural gas resources. Instead of trying to lead the country to increased energy costs, it is time for CAP to follow the will of the American people and urge government to get out of the way of the increased job creation, economic growth and security which come with increased production of our domestic oil and natural gas resources.
ABOUT THE AUTHOR
Stephen started with API over 8 years ago and currently manages tax and accounting policy issues for the organization. Prior to joining API, Stephen worked for 12 years in ExxonMobil’s Tax Department as a planner for their Upstream, Downstream and Chemical operations. He is currently Chair of the Energy and Environmental Taxes Committee of the American Bar Association’s Tax Section. Stephen received a BA from the University of Texas and a JD from the National Law Center at George Washington University.