Gasoline prices are at all-time highs. As a result, energy policy concerns echo in boardrooms and family rooms across the U.S. At a recent House Energy Committee hearing on “The American Energy Initiative,” Harold Hamm, the top energy adviser of Republican presidential candidate Mitt Romney, warned that President Obama’s proposed repeal of the energy tax provisions for oil and natural gas producers (including a manufacturing tax deduction that all U.S. manufacturers receive) would decrease drilling activity by 40 percent. Can the U.S. afford that?
President Obama wants to end the right of major U.S.-based oil companies to deduct tax payments they make to foreign governments for their overseas operations. He also wants to end tax credits that are allowed to every oil and gas company. Romney wants to protect American competitiveness by keeping the tax benefits intact for oil companies. Let’s look deeper at the energy industry and the taxes energy companies pay.
According to the American Petroleum Institute, the oil and natural gas industry pays more than $30 billion on average to the federal government in taxes, rents and royalties every year. The industry is taxed at an effective rate of 60 percent – higher than any other domestic industry.
Under President Obama’s plan, the energy industry would pay $10 billion more in U.S. taxes every year than it does now. But his logic – if the industry now pays $30 billion, an additional $10 billion would be good for the federal government – is seriously flawed.
The oil and gas industry is responsible for more than nine million jobs in the United States and contributes 7.7 percent of the country’s GDP. A 2011 study by research and consulting firm Wood Mackenzie found that increased taxes on energy producers will put a burden on the industry, ultimately resulting in fewer jobs, less GDP growth and less government revenue. The implications would likely extend to the economy, the individual and the federal government’s coffers.