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Stop Confusing Good Tax Policy With Subsidies

By | Taxation | No Comments

This morning, a report released under the Hamilton Project banner of “Innovative Approaches to Tax Reform,” proposes the “Elimination of Fossil Fuel Subsidies.”  Unfortunately, the paper ignores sound tax policy and takes aim at a package of long-standing tax provisions that enable oil and gas companies to explore and develop new domestic sources of energy.

Indeed, Manufacturers take umbrage to a number of assumptions in this paper. So let’s start at the top. The report argues that the so-called “subsidies” provided to the industry for domestic production “have a very small impact on production” and thus eliminating these (so-called) subsides would have “a very small impact on production, their removal will not materially increase retail fuel prices, reduce employment or weaken U.S. energy security.” This belies so many real-world facts that we just had to respond.

First, the provisions in question are not subsidies. They represent sound tax policy that, among other things, allow energy companies to deduct ordinary and necessary business expenses and recover their capital costs. In contrast, subsidies are direct payments from the government to entities. This is clearly not what the paper is talking about.

One thing on which manufacturers can agree with the author is the need to enact a “simpler, more efficient tax code” – this is true especially in today’s world where the U.S. has the highest corporate tax rate. This leads to the second fact that is ignored in this report… that oil and gas companies with a global market and worldwide consumers have to look at worldwide production opportunities and U.S. production projects have to compete with opportunities elsewhere. With this reality, good tax policy matters in attracting development and production–and jobs– in the U.S. Despite the author’s assertion that “none of the current tax expenditures for fossil fuels targets novel techniques or … promotes innovation,” horizontal drilling and the sophisticated techniques used in hydraulic fracturing are two innovations that are fairly recent, were costly to develop and have resulted in the development of game-changing resources that are still emerging. And these projects are a boon to local domestic economies where they are ongoing.

Continuing along with our fact-checking, how did the author conclude that oil and gas production is not manufacturing as a basis for his argument that the domestic manufacturing tax deduction for oil and gas should be eliminated? Merriam Webster defines manufacture as: “1) something made from raw materials by hand or by machinery; 2a) the process of making wares by hand or by machinery especially when carried out with division of labor, b) a productive industry using mechanical power and machinery; 3) the act or process of producing something.” That pretty much sums it up, by all accounts oil and gas production is manufacturing by its very nature. Perhaps a refinery tour is in order!

Finally, the report is a wolf in sheep’s clothing as it is apparent that the author seeks to use the tax code to advance an environmental agenda. Throughout the report the author refers to the environmental benefits of a reduction in carbon emissions resulting from a reduction in production and consumption. Manufacturers, like all concerned citizens are concerned about the environment. However, if the author wants to have an environmental debate and address what he proposes as environmental impacts, then that debate should not be engaged under the guise of tax reform.

Manufacturers strongly support comprehensive tax reform, one that lowers the corporate rate to one that is competitive, includes a territorial system of taxation, that includes a permanent and strengthened R&D credit, includes permanent lower rates for small businesses and that includes a robust capital cost recovery system. With these principles as a starting point manufacturers want to engage in a tax reform discussion but if the starting point is from the position taken by this author, then this debate may remain long-awaited.

Now That Taxes Have Been Rejected, How About More Energy?

By | Economy, Energy, Taxation | No Comments

The Senate handily rejected cloture Tuesday on S. 940, the Close Big Oil Tax Loopholes Act, which, shorn of political slogans, was the legislation to raise taxes on oil and gas development in the United States.

The vote was 52-48, with Democratic Sens. Mark Begich of Alaska, Mary Landrieu of Lousiana and Ben Nelson of Nebraska joining Republicans to block the bill that would do nothing to address gas prices, but would discourage U.S. energy security and global competitiveness. Sen. Susan Collins (R-ME) was the sole Republican to vote for cloture.

Next up once the Senate convenes at 10:30 a.m. this morning, a motion to proceed on legislation sponsored by Senate Republican Leader Mitch McConnell (R-KY) to expand domestic oil and gas production. S. 953, the Offshore Production and Safety Act,  mirrors the bill passed by the House last week, H.R. 1299, the Putting the Gulf of Mexico Back to Work Act.

Sen. McConnell summarized the bill on the Senate floor Tuesday: “Our bill would return American offshore production to where it was before this administration locked it up, require Federal bureaucrats to process permits–to make a decision one way or the other: process the permit, make a decision one way or the other–rather than sitting on the permits. And it would improve offshore safety. Our plan not only acknowledges the importance of increasing domestic production, it does something about it, while ensuring environmental safety.”

Tax Targets: Today, Oil Companies; Tomorrow, Another Industry

By | Economy, Energy, General, Taxation | No Comments

The Senate Finance Committee has a hearing scheduled for Thursday, “Oil and Gas Tax Incentives and Rising Energy Price,” to which executives of a select few oil companies have been invited.

“Frankly, we are an attractive target,” said Ken Cohen, ExxonMobil’s vice president of public and government affairs. “I think the term I used was ‘irresistible’ right now for politicians to whale away.”

Cohen and Jaime Spellings, ExxonMobil’s vice president and general tax counsel, spoke this morning on a conference call for bloggers organized by the American Petroleum Institute. Much of the discussion centered on the issues of profits and taxes Cohen detailed in a recent post at ExxonMobil’s Perspectives blog, “ExxonMobil’s U.S. taxes and U.S. earnings – Some relevant numbers for Washington.”

Oil companies are today’s target, but other industries and the public at large should be concerned, Cohen argued.

I just hope that we can have at some point … some rational discussion of what the country’s tax policy should be. And other large industries should also take note, or actually any industry. Read More

President’s Speech on Energy was Short on Taking Responsibility

By | Energy, General | No Comments

Manufacturers agree with President Obama’s comments Wednesday on the need to increase domestic oil and gas production. Domestic energy producers want new exploration and drilling and to resume projects that were forced to shut down under the moratorium imposed last spring.

While the Administration is advocating for greater domestic production, it simultaneously is preventing the permit process from operating in a timely and efficient manner. The Administration bears the responsibility to grant leases and permits for exploration and production to begin. Implicating domestic energy producers for lack of action, shortage or delay is irresponsible and inaccurate. It is time this Administration follow the policies it proposes. Action is required, not additional oratory.

The National Association of Manufacturers supports an “all of the above” approach to energy supply. To successfully compete in a global marketplace, American manufacturers must have reliable, affordable and secure energy sources. By increasing domestic production and incorporating renewables into a larger energy portfolio, manufacturers will be protected from the unpredictable price swings that come along with foreign energy sources, providing the stability needed for manufacturers to grow, create high-paying jobs and invest in the future.

Mahta Mahdavi is NAM director for energy and resources policy.

The Department of Interior Issues Its Fifth Permit – But It’s Still Not Enough

By | Energy | No Comments

The Obama Administration, today, issued its fifth deepwater permit since lifting the Gulf drilling moratorium, approving Chevron’s request to drill a “wildcat” well in 6,750 feet of water more than 200 miles off the coast of Louisiana.  This is the most important permit so far, in that it is actually for a new exploratory drilling as opposed to a permit that was previously issued.  It is also the second permit to be approved which is using the containment system designed by Marine Well Containment Company as its solution in the case of a loss of well control.  This is a good step forward and, we hope, marks the Administration’s intention to move more expeditiously on the other pending permits.  In addition, with the unrest in the Middle East, and the increasing oil prices, there is now talk of a possible double-dip recession.  Therefore, it is essential for the Interior to move on these permits as quickly as possible to ensure that as many companies are able to return to the Gulf of Mexico to safely drill and explore for domestic sources of oil and gas. 

Offshore drilling is a significant part of the U.S. economy.  The federal government estimates that the Gulf of Mexico Outer Continental Shelf contains proven reserves of 20.3 billion barrels of oil and 183.7 trillion cubic feet of gas.  Moreover, the waters off Alaska’s coast contain about 27 billion barrels of oil and 132 trillion cubic feet of natural gas.  These reserves can provide a dependable and secure source of energy which will keep energy costs low. 

With its action on Chevron’s application, Interior has shown itself capable of approving permits for new deepwater drilling.  Let’s see the agency follow through by moving on all these pending permits, ensuring that many companies are able to return to the Gulf of Mexico to safely drill and explore for domestic sources of oil and gas.