Reports circulating firmly indicate that Congress plans to use the Administration’s FY2011 budget proposal as an outline for the new taxes they’d seek to levy on the industry to offset spending in other sectors. Lawmakers in both the House and the Senate have already drafted language in keeping with the President’s budget request.Currently in the Senate, for example, lawmakers have started efforts to move forward on such action through the erroneously named, Close Big Oil Tax Loopholes Act. The true intent of the bill however, is to impose discriminatory and costly new taxes on the energy industry alone – leading us to our own name for the bill, the Closing Access to Affordable American Energy Act.
If passed, these job-killing tax increases on the oil and gas industry would be devastating to the Gulf and national economy. Learn more on this issue below:
- Dual Capacity Taxes: Giving Foreign Competitors the Upper Hand in Energy Development
- Section 199: Repealing America’s Energy Security
Modification of Dual Capacity Taxpayer Rules
The President’s budget and accompanying language circulating in the Senate would modify dual capacity taxpayer rules for American oil and gas companies, creating a new tax structure that would put our own domestic producers at a severe competitive disadvantage with its global competitors – companies like CNOOC, Sinopec, and BP. Dual capacity rules were put in place over 25 years ago to help American companies who generate income in foreign countries offset traditionally very high American income taxes on their foreign income. Current plans to change this policy would amount to levying a double-tax on domestic oil and gas producers, while completely exempting companies headquartered elsewhere.
At the end of the day, this means a major leg up for our foreign competitors in the global energy market – both as they seek to make money and as they explore for and develop new resources.
This is not only a major hit to our energy producers in the global market, it’s also a punitive, discriminatory measure that would hit only one sector of one industry rather than being evenly applied across the economy. This is poor tax policy, and will only serve to threaten our tenuous path to economic recovery. The American oil and gas industry provides over 9 million jobs – a change to treatment of dual capacity taxpayers would only mean a real threat to that substantial economic contribution.
Not only is this bad news for the economy, it is equally dangerous from a foreign policy and national security perspective. If efforts to levy a double tax on American energy companies’ operations overseas are successful, state-run oil and natural gas competitors in places like Russia, Venezuela and China will secure energy sources at our expense. This weakens our standing amongst our diplomatic strength relative to our competitors – hardly the mark of effective policymaking.
Proposed changes to dual capacity rules mean a de facto subsidy for foreign competitors at the expense of American companies and their workers. During economic times like these, to offer a handout to foreign competitors is unconscionable.
Repeal of Section 199 Manufacturing Deductions
Also on the table is a repeal of a critical deduction afforded to all manufacturers known as Section 199. This piece of the tax code is currently enjoyed by all companies who produce goods inside American borders. But just like the changes to dual capacity, the President’s budget and related legislation would fully repeal this incentive only for American oil and gas companies.
Regressive tax policies aimed at just one industry send a message of caution and uncertainty to prospective investors as well as to the companies themselves. A repeal of Section 199, like the one suggested in President Obama’s budget blueprint and legislation already in circulation would discourage investment in energy infrastructure and would threaten the production rates of energy companies themselves. With our economy in such dire straits, such a move would be unthinkably short-sighted and ill-advised.
Congress’s own analysis shop, the Congressional Research Service, found that Section 199’s repeal would “adversely affect domestic production and increase imports.” [“Energy Tax Policy: History and Current Issues,” Congressional Research Service April 1, 2008] Since the President undoubtedly hopes to enhance our nation’s energy security, it’s counterintuitive that his budget proposal would increase taxes on energy companies. Lawmakers tax things (cigarettes, alcohol, etc.) when Americans want less, not more.
According to analysis conducted on behalf of the Institute for Energy Research in 2008, a repeal of Section 199 deductions for domestic oil and gas companies would mean an increase in U.S. reliance on imported oil from politically unstable nations, would cost the U.S. economy 637,000 jobs and reduce U.S. household earnings by nearly $35 billion over the next 10 years.
The energy industry is absolutely critical to our nation’s economic health, both because of the affordable energy resources it provides and the jobs and revenues it produces. To single out any one industry for punitive tax treatment is wrong. To single out the American energy industry – creating a tax scheme that makes it harder, not easier for us to compete with foreign and state-run companies – should be completely out of the question.
