Op-Ed: Targeting oil and gas companies for higher taxes is unfair and unproductive
With gas prices creeping upward, drivers in Chicago, facing some of the highest prices in the nation, are bracing for the impact of a costly summer driving season as they hit the road for Memorial Day weekend.
What they may not realize is the fact that – if some in Washington have their way – punitive new taxes on American energy companies could press prices even higher.
If like many Americans you recently included deductions for items like mortgage interest or state and local taxes on your federal 1040 return, you probably don’t think of yourself as a deadbeat living off your fellow citizens. You likely don’t consider the tax deduction for your charitable donations to be a government subsidy, either. If you’re among the millions of people who are self-employed or own small businesses, chances are you don’t think the write-offs you took for normal expenses to earn your living are out of the ordinary.
Rather, you see yourself as a contributor to the American economy, simply navigating the tax laws as best you can to pay what you legally owe and keep what you’ve earned.
But if you were an energy company instead, attempting to claim deductions for the cost of doing business or tax relief designed to encourage competitiveness and job creation, then you’re guilty. You’re being unfairly subsidized, in the eyes of the Obama Administration.
For yet another year, the President is calling for repeal of standard tax provisions – shared by many industries – and is seeking to cast oil and gas companies as scofflaws looking for handouts, or a drain on our economy. Nothing could be further from the truth. After all, this is an industry that employs more than nine million Americans and invests billions upon billions into our economy.
If this Administration is successful in such attacks, the result could be the loss of current and future American jobs, the loss of economic development and investment, the loss of our energy leadership to other countries and, potentially, the loss of a rare opportunity to reform the Tax Code top-to-bottom.
Let’s look at some facts. Despite its portrayal by some as shirking its duty to pay its “fair share,” the American oil industry’s average tax rate is 41 percent – much higher than the 26.5 percent tax rate for S&P industrial companies. To give one specific example, for every dollar of profit over the last decade, ExxonMobil has paid $3 in taxes. In short, the tax burden faced by these companies is already immense.
Yet, the Obama Administration’s 2014 budget would add to the load. One proposal would prohibit American oil and gas companies from receiving a credit to offset taxes paid to foreign governments as they operate abroad. That our own government would seek to hobble domestic producers in such a way is counter-intuitive at best, and wrong-headed to be certain. The result would be a de facto tax advantage for non-U.S. energy behemoths like Venezuela’s CITGO and China’s CNOOC (both of which are state-owned). That sure doesn’t seem fair.
Another proposal would take away the deduction Congress established just a few years ago for creating new jobs – but only from oil and gas companies. Yet, the energy industry’s deduction is already punitively capped at a lower percentage than other actors in our economy – from coffee roasters to software manufacturers – can receive.
Right now America is on the path to becoming a net energy exporter. Recent natural gas discoveries and new technologies have changed the game. The export of liquefied natural gas and coal, along with the transportation and refining of Canadian oil, also can contribute to strengthening our role in world energy markets.
But this transformation will not happen if Washington engages in political axe-grinding. Indeed, failing to recognize the industry’s potential contribution to the economy will simply press consumer prices – such as those faced by drivers at the pump – ever higher. Certainly, Chicagoans are all too familiar with the unkind reality of exorbitantly high gas prices.
The facts are simple. Careless pursuit of punitive, anti-energy tax hikes would touch off another round of pick-winners-and-losers policies that will take us further away from the goal of tax reform: a simpler set of laws that work better for everyone.
Clearing out deductions and credits to streamline the tax system can’t boost our future economic prosperity unless tax rates are lowered across the board at the same time. Doing the former without doing the latter certainly won’t help to bring prices into line.
Pete Sepp is executive vice president of the National Taxpayers Union.