Any doubt we are in the middle of an election season will be erased by casting an eye on Washington, where some in the United States Senate are once again training their sights on the oil and gas industry.
The Senate leadership is scheduling a vote in the next few days on a bill its supporters claim will “eliminate unnecessary tax subsidies” for integrated energy companies like ExxonMobil. It bears a loaded title: the “Repeal Big Oil Tax Subsidies Act” (S.2204).
As Yogi Berra might say, “It’s déjà vu all over again.” A nearly identical bill was considered by the Senate earlier in this Congressional session and failed. So why are the bill’s proponents trying again now?
It seems that politics and campaigning have a lot to do with it, as it can’t be justified based on good policy.
I’ve explained before that items cited as “subsidies” for oil and natural gas are in fact legitimate tax provisions that apply to many organizations and industries across the board.
Take, for example, the manufacturing income deduction under Section 199 of the tax code, which critics often point to first. It’s no subsidy at all. It’s a deduction available to virtually every American manufacturer – from Gulf Coast refiners and Detroit automakers to Silicon Valley microchip manufacturers and Hollywood movie studios.
To deny just five large oil and gas companies from utilizing this deduction, as the new bill proposes, does not remove a special industry subsidy; instead it singles out a handful of companies for special punitive taxation. That’s Exhibit A in government picking winners and losers.
Another proposal would remove a provision that ensures U.S.-based companies like ExxonMobil are not double-taxed on income earned outside the United States. To prevent double taxation, the U.S. has traditionally permitted a credit for taxes paid to foreign governments, available to individual citizens and corporations alike. The Senate proposal would effectively remove that credit for three – and only three – American energy companies: ExxonMobil, Chevron, and ConocoPhillips. Our non-U.S.-based competitors would be unaffected.
Aside from the outrageousness of being subjected to a double-jeopardy tax trap, the practical effect of such a measure would be to give non-U.S.-based oil companies a new advantage. Is a policy that handicaps a U.S. company to the benefit of its foreign competitors really something that the U.S. government should be promoting?
Last week I pointed out it’s the oil and gas industry that provides significant financial support to the U.S. government, not the other way around. Each day the industry pours $86 million into the federal government’s coffers in rents, royalties, bonuses and corporate taxes – roughly $31 billion annually (figures that don’t even begin to include the payments made at the local and state levels). Remember those numbers the next time you hear someone in Washington trying to score cheap political points by calling for Big Oil to pay its fair share of taxes.
Taken as a whole, the “Repeal Big Oil Tax Subsidies Act” would do little but raise taxes on energy companies and, by extension, energy consumers. It would hike the cost of producing the future energy supplies our economy will need while hamstringing domestic energy producers.
Let’s hope the Senate has the sense to shelve this political proposal one more time.
