EnergyFactor By ExxonMobil | Pespectives has a new home

Picking winners and losers in the 2012 budget

On Monday, the Administration released its budget request for fiscal year 2012. Unfortunately, the Administration is proposing almost $90 billion in tax hikes for the oil and natural gas industry, albeit under the guise of “eliminating subsidies to fossil fuels” in an attempt to gain popular support for this measure.

This misleading rhetoric not only ignores the contributions of the U.S. oil and natural gas industry to America’s economic and energy security – but it also ignores the negative impact that higher industry taxes could have on consumers.

This last point is important but often overlooked in the debate. After all, why should people care whether an oil and natural gas company pays higher taxes? The fact is that higher taxes have a direct impact on industry costs. They impact investment decisions that create jobs and produce future energy supplies. Higher taxes make it more expensive to produce gasoline and diesel fuels that keep our cars and our economy running, as well as the natural gas that heats our homes and generates electricity.

Our lawmakers are asking U.S. consumers and companies to incur the costs of this tax hike so that they can insteadmake “a significant investment in clean energy technology.” What they call “investments” are actually massive amounts of real, taxpayer-funded subsidies needed to pay for efforts like the one to have 1 million electric vehicles on the road by 2015. Taxpayer support of ethanol is yet another example. A recent Energy Information Administration study shows that ethanol/biofuels received federal support totaling $5.72 per million BTU, while petroleum and natural gas received just $0.03 per million BTU. In 2009 alone, biofuels received $6 billion of federal subsidies via tax credits according to the Congressional Budget Office, and if existing policies continue, taxpayers’ support for corn-based ethanol biofuels will total more than $30 billion in the next five years.

Let me be clear: I am not criticizing federally funded investments in pre-commercial R&D in energy and other fields. As a member of an industry that invests billions in R&D, I realize the critical need to invest in technologies to find and develop new energy supplies. What I take issue with is the U.S. government trying to pick winners and losers in the marketplace. This approach penalizes today’s consumers and does nothing to advance genuine long-term breakthroughs for tomorrow.

Another example of this concentrated effort to pick winners and losers is one I talked about last week: the Section 199 domestic manufacturing deduction. Critics commonly mis-label it a “subsidy” for the oil and natural gas industry. But the fact is that Section 199 was established to support new investment and employment opportunities across all industries in the U.S. And with the release of the budget, the Administration has proposed eliminating this deduction only for the oil and gas industry. In effect, this sends the message that an oil refinery worker’s job is less important than – for example – an auto assembly worker’s job. I cannot understand what the government hopes to gain by telling oil workers that their jobs are less valuable to the economy than those in other manufacturing industries.

On the subject of jobs, there’s another proposal in the budget that threatens the ability of our industry to compete for global energy projects that employ workers at home and abroad. It’s the modification of the foreign tax credit for U.S. oil and gas companies. This tax rule ensures that all U.S. companies can operate in other countries without being taxed on the same income twice – once by the host country and again at home. It helps to level the playing field when American businesses compete with non-U.S. companies whose countries have similar rules – foreign companies such as BP, Shell, and Total, just to name a few.  If we’re serious about American jobs and competitiveness, this is something that should concern all of us. Why should our own government offer BP, Shell, Total and many other international companies a head-start over U.S.-based firms? Modifying the rule risks double taxation and gives foreign investors a huge advantage over U.S. companies. I’ll talk about this specific issue more in the coming weeks.

So to the consumers who this budget proposal affects the most, I say don’t be fooled by talk about eliminating oil company subsidies. These are punitive, discriminatory tax policies, not the removal of alleged “subsidies.” They are a guise to justify raising taxes on an industry that adds $1 trillion a year to the U.S. economy, supports 9.2 million jobs, and pays billions in taxes each year – not to mention the fact that it provides more than 60 percent of America’s daily energy needs. In short, these efforts to punish our industry for its success are no means to address our nation’s fiscal and economic challenges.

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