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.