Yet Another Attack on The Oil Industry

Given all the election-year maneuvering in Washington, it's not surprising that efforts to enact a "tax extenders" measure acceptable to the House and Senate are stuck in the mud. Lawmakers can scarcely agree on the color of the sky, let alone the question of how expired tax provisions should be dealt with in the waning days of the 113th Congress.

For many of the 50-plus sections of the Tax Code that are currently in limbo, gridlock may not be such a terrible thing. Favors such as those for NASCAR tracks and racehorses might best be put to rest permanently, devoting any revenue windfalls to across-the-board rate reductions (and certainly not to higher government spending). On the other hand, items such as the research and experimentation credit or enhanced small-business expensing could be workable, critical parts of a streamlined tax system that allows for more rational treatment of pro-growth investments.

Consensus is a rare commodity in any discussion surrounding tax policy, but on extenders - and on other pending questions surrounding tax reform - earnest, thoughtful debate is key. That's what makes the recent grandstanding in the House Ways and Means Committee so discouraging. Not once, but three times during a markup of legislation pertaining to tax extenders, Democratic Reps. John B. Larson of Connecticut and Earl Blumenauer of Oregon offered amendments that would have levied punitive new taxes on America's major integrated oil and gas companies.

In each instance, the proposals were roundly rejected, and thankfully so. Tax increases - whether they involve repeal of a domestic-production deduction, modification of rules governing "dual-capacity" taxpayers with operations abroad, or limitation of important accounting methods - would do nothing to improve our complex tax structure or significantly address long-term deficits. They would, instead, put considerable strain on one of the most vital sectors in the U.S. economy.

Whatever public relation value such proposals may have for politicians, they cloud the real issues. The oil and gas industry supports 10 million American jobs, and has kept hopes for a strong recovery afloat for more than the past half-decade. Unlike the general economy, which has grown at an anemic 1 percent since the beginning of the recession, the oil and gas industry has experienced a full-blooded 40 percent expansion.

Proponents of an energy-tax increase also neglect to mention the already harsh tax environment the oil and gas companies have to contend with and overcome. As this author has often noted, an analysis in The New York Times last year determined that the industry pays among the highest effective tax rates - 37 percent - in the entire S&P 500. The average rate among large companies in the United States is roughly 29 percent.

Soaring capital expenses already make the cost of doing business in this sector high. Like any other business activity, though, the investment needed to keep finding, extracting and refining energy is badly undermined by heavier taxes. American companies will be hobbled in the global race for energy, losing ground to state-run competitors in countries such as China and Venezuela - competitors whose governments subsidize production at nearly every turn.

Such shortsighted policies adversely affect many aspects of our lives, from higher home-energy bills and a bigger bite at the gas pump to costlier products and services dependent on energy.

It's not hard to see the left's ploy to score rhetorical points through attacks on "big oil." In reality, the impact cannot easily be isolated to the largest companies. The small and independent energy companies that have driven welcome developments such as the shale-gas boom in North Dakota, Pennsylvania, Ohio, Arkansas and elsewhere could be hit hard, too. Various proposals to alter percentage depletion and intangible drilling cost write-offs, tax-law sections that have equivalents in many other industries, are of special concern to them.

Thus, while Mr. Larson and Mr. Blumenauer are far from the first to pursue higher taxes on oil and gas, they certainly won't be the last as the 2014 election cycle intensifies. Furthermore, as my colleague Nan Swift pointed out in a recent analysis of the extenders fight, one thing is for certain: "Without real reforms to make good policies permanent, we'll be haggling over the minutiae of tax extenders again soon."

In the debate over both short-term tax extenders and long-term tax reform, lawmakers should be looking beyond November and focusing instead on big-picture solutions that provide relief for overburdened taxpayers and encouragement to entrepreneurs in every industry.



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