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Obama's Attack on Big Oil: Fair Share or Targeted Tax Hike?

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Unread 09.20.11, 06:58 PM
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Obama's Attack on Big Oil: Fair Share or Targeted Tax Hike?

On 09.20.11 12:15 PM posted by Nicolas Loris

President Obama says he wants big corporations, including oil companies, to pay their “fair share” in taxes. His deficit reduction plan includes eliminating what he calls special loopholes and subsidies for oil and gas companies—despite the fact that they’re not specific to the oil and gas industry but the broader manufacturing sector. If the President wants to collect more money from the oil and gas industry, he should support increasing access to America’s energy resources. This would greatly increase the amount of revenue coming into the federal government, and it would do so without raising taxes.

If Congress opened access and placed a freeze on environmental regulations and the Administration moved to effectively permit new projects, the federal government would collect more than $36 billion as soon as 2015 and more than $800 billion by 2030, according to a study from Wood Mackenzie. The general economy would stand to benefit tremendously: Increased production would generate more than 1 million jobs by 2018 and more than 1.4 million jobs by 2030. President Obama’s “Living Within Our Means and Investing in the Future” plan ignores this sensible idea.

Instead, the President’s plan for economic growth and deficit reduction proposes to eliminate what he calls special tax breaks for the oil and gas industry. Most of what the President and anti-oil crusaders label as oil subsidies and oil tax loopholes are not tax treatment specific to the oil and gas industry. These are broad tax policies that apply to many industries. For instance, the tax credit under Internal Revenue Code Section 199 goes to all domestic manufacturing. Producers of clothing, roads, electricity, water, and many other goods produced in the United States are all eligible for the manufacturer’s tax deduction. Even Hollywood and The New York Times can take it.

By removing oil and gas production eligibility for this broad tax credit, the President is imposing a targeted tax hike, not closing a tax loophole. In fact, Congress already imposed a tax hike on oil and natural gas companies by freezing the deduction they can take at 6 percent, when other manufacturers receive a 9 percent deduction. Other proposals in the plan unfairly target the oil and gas industry, such as removing accelerated depreciation despite the fact the President is championing temporary 100 percent expensing. The best solution would be for Congress to make immediate expensing permanently available for all business investments.

With respect to oil and gas activity, the one part that does make sense in the White House’s deficit reduction plan is to end Department of Energy research for fossil energy. In the plan it says, “These R&D activities have historically funded development of technologies that can be com*mercialized quickly, and are thus activities which should instead be funded by the compa*nies that benefit from the projects. Mandatory funding for this program sunsets in 2014. Repeal of this program, effective for 2012 and beyond, will save $150 million over the 10-year budget window.”

The acknowledgement that the federal government is engaging in commercial activities that are best left for the private sector is an important one, and the U.S. could save billions more if it removed the Department of Energy’s role in all commercial activities that have evolved well beyond the scope of basic research and development.

Ending all energy subsidies, including those for oil and gas, would be good for American taxpayers and consumers. The way to help the energy consumer is not with targeted tax hikes but by allowing access for exploration and production that will create jobs and lower prices. Doing so will also accomplish the goal of having more money come into the federal treasury—from rent, royalties, and lease payments, not from punitive tax hikes.

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