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The Latest Energy Tax-Hike Disguise

by Pete Sepp / /

What is it with Washington’s warped calendar anyway? Valentine’s Day is just around the corner, but a group of Senators apparently can’t wait until Halloween. How else to explain a recent letter from leading Senate Democrats, calling on House Republican leaders to end “taxpayer-funded handouts to big oil companies that add little to our economic or energy security” so as to “make a down payment toward reducing nation’s deficit.” We shouldn’t be fooled by the disguise of deficit reduction; what the Senators propose is a very ugly tax hike.

Almost no other area of policy sees the terms “subsidies” and “spending” mangled, mutilated, and otherwise misused than energy. The list of signatories to the letter, which include Sens. Bill Nelson and Bob Menendez, ought to provide the first clue that we’re in for a linguistic contortion act. These are the same sponsors of legislation in the 111th Congress to do away with two provisions of the Tax Code that are available to a wide range of industries – but only for U.S. oil and gas companies. The Section 199 domestic manufacturers’ deduction and the dual capacity tax credit are, respectively, aimed at creating jobs and offsetting taxes paid to other countries, and provide tax relief for companies throughout the economy.

Question: In what world do laws that thousands of businesses of all kinds use to offset liabilities from a burdensome corporate tax system become “subsidies” when a handful of those businesses develop oil and gas? The answer, apparently, is a world of the Senators’ own creation, where they decide which companies “making billions in record breaking profits” should get singled out for higher tax bills.

Next Question: In what world does raising the tax burden of an individual or a company become, in the words of the Senators, “a good first step towards cutting spending”? The answer, again, is a world only Washington can inhabit, where deciding not to take 100 percent of everything Americans earn is an “expenditure” that needs to be budgeted.

Several recent NTU posts on Government Bytes and elsewhere have exposed these follies of fiscal thinking, but a few points bear repeating:

  • Accepting for a moment the government’s flawed definition of “expenditure,” data from the Joint Committee on Taxation shows that so-called "big oil" receives only a fraction of the amount in energy-specific "tax expenditures" as compared to the renewables sector. Renewables are projected to receive an average of $12.5 billion in "tax expenditures" each year between FY 2009 and FY 2013, while major companies in the demonized American oil and gas industry are slated for less than a billion dollars. Where is the outcry among these Senators to “cut” the “budget” for renewables?
  • Last year a study estimated the economic costs of repealing the dual capacity and Section 199 provisions for oil and gas would total over 154,000 jobs lost in 2011 alone, not only in the energy sector but across the whole economy. Doing so would also result in more than $341 billion in lost U.S. economic output and over $68 billion in lost wages. So it’s puzzling that the Senators would want to proceed this way, especially since their letter states, “It defies common sense to cut programs that are creating jobs, helping jumpstart our manufacturing sector and strengthening the middle class …”

It’s one thing if Congress wants to revisit these provisions across the board in the name of tax reform that will cut rates. It’s quite another when lawmakers hide their high-tax agenda behind the mask of “deficit reduction.” Welcome to Halloween in Washington. Be afraid … be very afraid.