Hiking Oil Industry Taxes Won’t Produce More Energy

Although the debate over health care reform has commanded most of the public’s attention this summer, another important domestic policy issue is quietly taking shape -- new energy taxes. When lawmakers return to Washington, the Senate will take up the perennial issue of whether to raise taxes on America’s oil and gas producers.

Legislation has been introduced that would impose $31.5 billion in new taxes on America’s energy producers. But these taxes will harm every aspect of our domestic energy industry, from producers to refiners and every small supporting business in between.

One proposal would eliminate the domestic manufacturing income deduction, known as Section 199, for refiners while allowing all other manufacturers (auto makers, drug companies, etc.) to continue using it. Not only would this new tax further reduce America’s refining capacity -- which currently supplies only 84 percent of domestic demand -- but it would also give an unfair advantage to foreign competitors, who would be unaffected by the provision. Reducing our refiners’ ability to bring products to market will increase price volatility at the pump and transfer more American jobs and revenue overseas. These losses are the last thing our struggling economy needs right now.

As if hiking taxes on our energy producers at home isn’t enough, the government also plans to place new taxes on the important work they do around the globe. Congress wants to change the rules that apply to certain international earnings called foreign oil and gas extraction income (FOGEI) and foreign oil related income (FORI). These proposed changes would burden the industry with billions in new tax obligations over the next decade.

According to a new study by Energy Policy Research Foundation, Inc. (EPRINC), imposing higher taxes on oil and gas producers will only increase our consumption of imported fossil fuels. By levying a heavier tax burden on U.S. suppliers, domestic production will drop and we will have to import even more oil. What’s more, because higher taxes will drive power generators away from cleaner fuels like natural gas, greater amounts of coal will have to be used to produce electricity. EPRINC correctly points out that this will simply increase greenhouse gas emissions.

Despite all the attention being paid to renewable energy sources, the government’s own Energy Information Administration (EIA) estimates that fossil fuels will account for 79 percent of U.S. energy demand in 2030. The obvious conclusion is that we should be embracing policies to ensure our domestic producers can meet as much of that demand as possible. Hiking the industry’s tax burdens doesn’t do the job.

Ultimately, it is American consumers and businesses who will bear the burdens of uncertainty and price volatility as new taxes on the oil and gas industry retard domestic production while increasing our dependence on imports from countries that may be unstable or unfriendly.

Oil and gas companies already generate billions of tax revenues each year for Federal, state and local governments. Current legislative proposals to further hike taxes on America’s energy producers threaten our economy, our security and the environment. They should be rejected outright.

Bernard L. Weinstein (bweinstein@cox.smu.edu) is associate director of the Maguire Energy Institute and an adjunct professor of business economics in the Cox School of Business at Southern Methodist University in Dallas.