Raising “Big Oil’s” taxes will cost jobs and hurt the economy

In his State of the Union address on Tuesday, President Obama pledged to “keep cutting red tape and speeding up new oil and gas permits“ because he recognizes the vast economic contributions our industry makes in terms of creating jobs, generating tax revenues and strengthening America’s energy security.

But almost immediately after the president’s remarks, one U.S. senator introduced legislation that would undercut the oil and gas industry’s ability to invest in and find new sources of energy.

The bill’s sponsor calls it the “Close Big Tax Loopholes Act of 2013,” but other than getting the year right the title is misleading in every way. In fact, the whole bill is based on a collection of distortions about the industry and our tax treatment, and its provisions are predicated on a false claim that we receive special favors from Washington.

Far from removing tax loopholes and subsidies, this proposal would raise taxes on a select few companies, not to mention their millions of shareholders. Even the bill’s sponsor admits it is meant to target five large companies specifically: ExxonMobil, Shell, Chevron, BP and ConocoPhillips.

I’ve made this point many times before, but I’ll make it once more: The “loopholes” and “subsidies” our industry allegedly receives are anything but. Numerous independent fact-checkers have found that this language is inaccurate and false. (And, incidentally, some of our critics agree.)

Raising taxes only on oil and gas

Take provisions like the Section 199 deduction for domestic production activities … or deductions that “cover the cost of doing business and earning income to tax in the first place” (as The Wall Street Journal put it) … or even rules that prevent double taxation on income earned outside the United States – these are standard tax provisions that apply to American companies across a wide array of industries.

Yet these are the very provisions singled out by those claiming to want to end supposed loopholes for oil companies. To deny the availability of these provisions to just a handful of companies is the same thing as raising taxes on only those companies.

The truth about the oil and gas industry is that we pay a lot in taxes – more than $86 million per day to the federal government in both income taxes and production fees. And as the American Petroleum Institute points out, “U.S. oil and natural gas companies pay considerably more in taxes than the average manufacturing company. In 2011 income tax expenses (as a share of net income before income taxes) averaged 40.6 percent, compared to 25.1 percent for other S&P Industrial companies.”

The irony is that there are plenty of energy companies receiving subsidies in the form of direct grants and other favoritism from government. But these are usually “green energy” companies whose ability to compete is unproven, or whole industries that are kept afloat by government mandates requiring consumers to buy their products.

Do “Big Oil” companies like ExxonMobil get special treatment from Washington? Only in the form of punitive, targeted attempts to penalize a handful of large, investor-owned entities. Those policies would single out our peers and us from how virtually every other American manufacturer or producer is treated under the federal tax code.

There are a lot of reasons to think this is bad economic policy. More than that, we should always be wary of efforts that single out one industry – or even a handful of companies within one industry – for special tax punishment.


6 Comments

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  1. Classifieds Australia says:

    Raising Taxes on production sector always hurts economy , specially when economy is thin paper

  2. pius nutsugah says:

    The energy sector is a vital area and an engine of growth. Issues in this sector are delicate and must be handled carefully. Furthermore, the sector has it own unique problems such as ageing workforce, jobs in the sector seem not to be attracted to the youth, infra-structure, complexity of government regulation, fighting pollution, technology among others.
    Nevertheless, the rate at which governemt is pushing for renewable source of energy is alarming which has led some to be waste of valuable resource.
    Currently, US generates 50.1% of the country energy needs from only coal which non-renewable.
    Increasing tax would have a negative effect in the industry and the economy at large, besides, it would also discourage investors which would have more devastating effect on the other sectors of the economy.
    Government can use these loopholes to encourage companies to produce cleaner energy and help fight environmental pollution.

    Pius Nutsugah

  3. Carlos Lumpuy says:

    subsidy |ˈsəbsidē|

    noun ( plural: subsidies)

    –defined as a grant or contribution of a sum of money granted by the government to assist an industry or business so that the price of a commodity or service may remain low or competitive, or a sum of money granted to support an arts organization or other undertaking held to be in the public interest.  

    For example: a farm subsidy or a grant to the Smithsonian.

    This is what we talk about when we talk about the perversion of language:

    There are no oil subsidies.

    There never have been, since the first Drake oil well was drilled in Northwestern Pennsylvania in 1859.

    The federal government does not grant any money to private oil and gas companies.

    This is a farce that keeps getting repeated to the point that people start believing it.

    Like other private manufacturers and businesses, oil and gas companies, in their normal accounting and regular reporting of income declared and expenses claimed, deduct the depreciation of capital employed in tools and equipment, and more importantly deduct the losses incurred in dry wells.

    If oil and gas companies are no longer allowed to claim these deductions and losses as the President proposes, it would alter the entire business model for the oil and gas industry that relies on very large sums of private capital and high risk taking.

    It doesn’t take a lot of scratching to understand that most of the real work in this industry is done by smaller drillers that with their private investors deploy their private risk capital and… read more »

    …private resources in what more times than not turn out to be dry wells.  

    If these investors are not allowed to claim these losses, private venture risk capital in smaller oil and gas companies would dry up and there would be a severe loss of jobs in this vital and essential industry, and good paying jobs, too.

    Only the larger companies like Exxon, BP, and Shell with large resources could afford to take these huge risks and losses and still remain viable concerns.

    This is a perfect example of misguided collectivist central planners taking and destroying viable and sustaining jobs from a productive industry within the results oriented private sector,

    To then give to another creation of the government’s own making with temporary make work jobs that are not sustaining nor viable because risk taking and recourse must remain in the private sector for real wealth creation and real sustaining jobs.  It cannot be dumped on the public sector.

    Well demonstrating this was the $535 million boondoggle of solar panel manufacturer Solyndra in California gone bankrupt a year later that was part of the $80 billion in public treasury stimulus to three dozen “green energy’ companies gone now bankrupt or circling the drain:

    Sun Power, First Solar, Evergreen Solar, SpectraWatt, Abound Solar, A123 Systems, Beacon Power, Eastern Energy, Ener1, and Amonix among them,

    – The greatest boondoggle in history being swept under the rug by a compliant press/media –

    That was part of this President’s last $800 billion stimulus program made by central planners who, while excusing their failures as well intentioned, if they are not misguided, in the long run, seek the willful destruction of the private sector altogether and a life by government ration for all of us.

    The central planners’ collectivist path is a road to certain ruin.  It always has been.

    ” When you see that trading is done, not by consent, but by compulsion

    –When you see that in order to produce, you need to obtain permission from men who produce nothing

    –When you see that money is flowing to those who deal, not in goods, but in favors

    –When you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you

    –When you see corruption being rewarded and honesty becoming a self-sacrifice

    –You may know that your society is doomed. ‘

    –Ayn Rand, Atlas Shrugged, 1957.

    America was built on low cost energy.

    These words by Ryan Houck that came out in the Spring of 2012 are a clear and forceful indictment on the folly and failed energy policies of this administration for the past four years and should be given more exposure now more than ever:

    

http://www.youtube.com/watch?v=CZ-4gnNz0vc

    We are Americans.

    –Carlos Lumpuy, Washington, D.C., Wednesday 20 February 2013.

  4. kevin brady says:

    While it may be true that it targets specific types of companies in specific industry, it’s still a loophole. Yes, the Administration only wants to close the loophole for some (whom have displayed little need for such loophole any longer). Your industry enjoy tax breaks…politicians like to use the word loophole when their preaching, but it’s the same thing either way.

    THe APIs stats on your industry vs the S&P are nice, but since taxes are not disclosed in financial statements that are publicly filed, the public will never fully be aware of how reliable those comparisons are, when speaking in terms of share of net income. Make tax filings public, then we can all decide if we think someone is taxed enough or too little. Oil companies enjoyed subsidies in their infancy, as other energy companies enjoy now in theirs.

    What it will finally take for change either way is us consumers forcing you to change your ways. I’ve taken those steps myself, and I believe many others will follow.

    • Bill Jones says:

      kevin…it’s a publicly owned company. Get over it. Do something creative with your life instead of being such an angry busybody because you don’t know how to be successful without the government. If you wanna have a voice in this…then buy some stock…get some dividends. Be happy.

  5. Jeff Mihaly says:

    Please stop the whinning. It made sense to provide the oil industry tax assistance when the cost of a barrel of oil was at 10 to 20 dollars per barrel. This support was to encourage the oil companies to explore for oil resources. This was because it was not profitable for the oil companies to explore for oil. This is not true with oil running close to $100 dollars a barrel. You are a profitable company and will remain so without your tax breaks. Start thinking about the country as a whole and not your little world. If the country deficit is as big of an issue that Republicans say it is then we all need to be willing too sacrifice not just the lower classes. We need to look at all of our expenditures and make sure that we are not hurting those that need these expenditures just to survive

  6. Classifieds Australia says:

    Raising Taxes on production sector always hurts economy , specially when economy is thin paper

  7. pius nutsugah says:

    The energy sector is a vital area and an engine of growth. Issues in this sector are delicate and must be handled carefully. Furthermore, the sector has it own unique problems such as ageing workforce, jobs in the sector seem not to be attracted to the youth, infra-structure, complexity of government regulation, fighting pollution, technology among others.
    Nevertheless, the rate at which governemt is pushing for renewable source of energy is alarming which has led some to be waste of valuable resource.
    Currently, US generates 50.1% of the country energy needs from only coal which non-renewable.
    Increasing tax would have a negative effect in the industry and the economy at large, besides, it would also discourage investors which would have more devastating effect on the other sectors of the economy.
    Government can use these loopholes to encourage companies to produce cleaner energy and help fight environmental pollution.

    Pius Nutsugah

  8. Carlos Lumpuy says:

    subsidy |ˈsəbsidē|

    noun ( plural: subsidies)

    –defined as a grant or contribution of a sum of money granted by the government to assist an industry or business so that the price of a commodity or service may remain low or competitive, or a sum of money granted to support an arts organization or other undertaking held to be in the public interest.  

    For example: a farm subsidy or a grant to the Smithsonian.

    This is what we talk about when we talk about the perversion of language:

    There are no oil subsidies.

    There never have been, since the first Drake oil well was drilled in Northwestern Pennsylvania in 1859.

    The federal government does not grant any money to private oil and gas companies.

    This is a farce that keeps getting repeated to the point that people start believing it.

    Like other private manufacturers and businesses, oil and gas companies, in their normal accounting and regular reporting of income declared and expenses claimed, deduct the depreciation of capital employed in tools and equipment, and more importantly deduct the losses incurred in dry wells.

    If oil and gas companies are no longer allowed to claim these deductions and losses as the President proposes, it would alter the entire business model for the oil and gas industry that relies on very large sums of private capital and high risk taking.

    It doesn’t take a lot of scratching to understand that most of the real work in this industry is done by smaller drillers that with their private investors deploy their private risk capital and… read more »

    …private resources in what more times than not turn out to be dry wells.  

    If these investors are not allowed to claim these losses, private venture risk capital in smaller oil and gas companies would dry up and there would be a severe loss of jobs in this vital and essential industry, and good paying jobs, too.

    Only the larger companies like Exxon, BP, and Shell with large resources could afford to take these huge risks and losses and still remain viable concerns.

    This is a perfect example of misguided collectivist central planners taking and destroying viable and sustaining jobs from a productive industry within the results oriented private sector,

    To then give to another creation of the government’s own making with temporary make work jobs that are not sustaining nor viable because risk taking and recourse must remain in the private sector for real wealth creation and real sustaining jobs.  It cannot be dumped on the public sector.

    Well demonstrating this was the $535 million boondoggle of solar panel manufacturer Solyndra in California gone bankrupt a year later that was part of the $80 billion in public treasury stimulus to three dozen “green energy’ companies gone now bankrupt or circling the drain:

    Sun Power, First Solar, Evergreen Solar, SpectraWatt, Abound Solar, A123 Systems, Beacon Power, Eastern Energy, Ener1, and Amonix among them,

    – The greatest boondoggle in history being swept under the rug by a compliant press/media –

    That was part of this President’s last $800 billion stimulus program made by central planners who, while excusing their failures as well intentioned, if they are not misguided, in the long run, seek the willful destruction of the private sector altogether and a life by government ration for all of us.

    The central planners’ collectivist path is a road to certain ruin.  It always has been.

    ” When you see that trading is done, not by consent, but by compulsion

    –When you see that in order to produce, you need to obtain permission from men who produce nothing

    –When you see that money is flowing to those who deal, not in goods, but in favors

    –When you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you

    –When you see corruption being rewarded and honesty becoming a self-sacrifice

    –You may know that your society is doomed. ‘

    –Ayn Rand, Atlas Shrugged, 1957.

    America was built on low cost energy.

    These words by Ryan Houck that came out in the Spring of 2012 are a clear and forceful indictment on the folly and failed energy policies of this administration for the past four years and should be given more exposure now more than ever:

    

http://www.youtube.com/watch?v=CZ-4gnNz0vc

    We are Americans.

    –Carlos Lumpuy, Washington, D.C., Wednesday 20 February 2013.