Raising taxes on the energy industry would be a mistake

Rep. Pete Olson Contributor
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As gas prices continue to escalate and headlines scream about Washington battles over how to manage our nation’s rising debt, predictably we hear calls for more taxes on the oil and gas industry. This anti-business lobby points to the profit reports of the large energy companies as their justification for more energy taxes, saying that energy producers need to pay their fair share of taxes. Let’s look at the facts.

This year President Obama has proposed eliminating development tax incentives for U.S. energy producers, which translates into a $90 billion tax hike on American energy. Much of the president’s proposal would eliminate tax deductions that help small, independent operators offset high upfront costs and incentivize domestic production. These are the same types of tax provisions that businesses not engaged in oil and gas production enjoy, yet only the oil and gas industry is targeted by the president.

Industry estimates indicate that repealing the Section 199 domestic manufacturing tax deduction and denying the deductibility of intangible drilling costs will place 58,800 jobs at risk in 2011 and 165,000 by 2012. Aside from the loss of American jobs, common sense tells us that increasing taxes will increase the price you pay at the pump, without the benefit of encouraging more exploration, development, and production. And all the while our U.S. dependence on foreign oil will increase.

For all of the administration’s rhetoric about big oil, the resource development tax increases the president is calling for will disproportionately impact smaller, independent energy producers. The average American independent producer employs only 11 people and yet these small businesses produce 90 percent of U.S. wells. These tax increases drain resources that would normally be available for capital investment, which means fewer American jobs and greater reliance on foreign resources.

The oil and natural gas industry is one of the largest U.S. employers, supporting more than 9.2 million jobs, contributing 7.5% to GDP, and contributing almost $100 million a day to the federal treasury. Despite claims to the contrary, American energy companies pay taxes. In fact, the oil and gas industry is the second-largest source of federal tax revenue — second only to taxes paid by individuals. Between 1980 and 2008, major energy producers paid over $1 trillion to federal coffers.

Instead of targeting one industry, we should be considering overall tax reform, specifically lowering the corporate tax rate and providing fair treatment of income earned by U.S. companies overseas. At 35 percent, the U.S. has one of the highest statutory corporate tax rates in the industrialized world and our tax laws prevent billions in overseas earnings from coming back to America where they can be invested at home. These reforms will spur economic growth, employ more Americans and make it easier for American companies to compete with their foreign rivals.

President Obama may think he’s punishing the CEOs of big companies, but his plan will hurt the everyday consumer of energy and imperil the jobs of millions of hardworking Americans. It also places the pensions of teachers, firefighters and other state pensioners at risk. A recent study determined that in the two biggest pension funds in several states — for school employees and state government workers — returns on investments in oil and natural gas from 2005 to 2009 averaged 46.5 percent, compared to 13 percent for all other assets.

Tax hikes on America’s energy producers will simply force us to pay more for gas and a host of energy-related products, further restrict our domestic energy supply (making us more reliant on unfriendly countries), and cost many thousands of Americans their jobs. Tax hikes will not make the environment cleaner, nor will they fix our nation’s energy problems. And they certainly will not stop Washington’s insatiable spending appetite. A better solution is overhauling our federal tax laws to encourage domestic energy production, eliminate loopholes, and provide a fairer tax structure so American companies can compete with their foreign rivals. These proposals will address our energy needs and put our nation on a path to economic stability and security.

Rep. Pete Olson represents Texas’s 22nd Congressional District and is a member of the House Energy and Commerce Committee.