The political pandering to the “Super Committee” on deficit reduction has kicked into high gear, and it’s not surprising that the U.S. oil and natural gas industry is first on the hit list for some seeking to score easy political points.
Some members of both the House and Senate recently sent letters to the committee asking to eliminate what they’ve falsely labeled as “oil subsidies for the five largest, most profitable private oil companies in the world.”
I’ve addressed this blatantly false claim so many times, but it still bears repeating: What they call “subsidies” are legitimate provisions of the U.S. tax code that apply to businesses and industries outside of our own.
From 2006 to 2010, the five largest oil and gas companies operating in the U.S. incurred $377 billion in income taxes – putting their effective tax rate at almost 44 percent. On average, the federal government receives $86 million a day from oil and gas companies when you add in rents, royalties and bonuses to income taxes.
ExxonMobil’s U.S. tax bill for the first half of 2011 was $6.7 billion, a figure that exceeded our $5.5 billion in operating earnings in the U.S. In other words, governments in the U.S. earned almost $1.22 for every dollar our shareholders earned. Meanwhile, we have continued to invest in projects in the United States – from 2009 to the first half of this year, we’ve invested $19.8 billion in U.S. capital projects, which is 120 percent of our U.S. operating earnings over the same period.
But the misinformation campaigns are only a symptom of a much larger and more disturbing problem: the short-sighted nature of proposed “solutions” for the U.S. deficit.
While they may provide the illusion of revenue gains, punitive tax increases would actually have the opposite effect in the long term. They have a chilling effect on business growth and investment – not just because they add costs to running a business, but also because of the political message the increase sends. If lawmakers are willing to take punitive measures once, history tells us it will happen again.
What we need are fewer short-term proposals that introduce uncertainty in taxation and hamper business investment and more long-term proposals that encourage economic growth.
The irony of this latest political stunt is that if U.S. policymakers would simply enact policies that allow us to develop U.S. energy resources, the revenue benefits would far exceed the $21 billion over 10 years they’re lobbying to collect through tax hikes.
A study by Wood Mackenzie earlier this year looks out to 2020 and clearly lays out the benefits of policies that promote greater oil and gas development:
- More than 1 million new jobs could be created
- Government revenues would increase by about $127 billion
- Consumers would benefit from an additional 4-million barrels’ worth of oil and natural gas per day
On the other hand, a similar study finds the following negative effects that greater tax increases would have on the industry by 2020:
- Loss of 48,000 jobs
- Loss of $29 billion in potential government revenue
- Loss of 700,000 barrels’ worth of oil and natural gas per day
For anyone who doubts such prolific jobs and revenue generation forecasts, just look at what’s happening where oil and gas development is taking place.
Recent job numbers from Pennsylvania, the epicenter of the Marcellus Shale development, are just a few of many examples of our industry’s ability to create jobs and revenue:
- In Pennsylvania’s Northern Tier, core oil and gas industry jobs rose by an astounding 2,075 percent in just three years.
- In the first half of 2011, there were 27,000 new hires in core and ancillary jobs working in the Marcellus Shale.
- The average Marcellus wage is more than $76,000 a year – nearly $30,000 greater than the average of all industries.
Similar growth is also taking place in other parts of the country, as evidenced by a recent economic impact study of the Barnett Shale in Texas – natural gas activities there in 2011 are responsible for $11.1 billion in annual economic output and more than 100,000 jobs in the North Texas region alone.
Let’s not let the short-sighted decision-making that contributed to the U.S. deficit problem prevent us from fixing it.