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Letter


Tax Hikes Won’t Solve Our Fiscal Woes
An Open Letter to the Joint Select Committee on Deficit Reduction:

October 25, 2011

Dear Chairman Hensarling and Chairwoman Murray:

As you know, the 362,000-member National Taxpayers Union (NTU) has been an active participant in the current deficit reduction debate. Through our own efforts and through coalitions, we have offered numerous recommendations stressing spending restraint and systemic tax reform. The concerns we have been communicating include opposition to higher aviation taxes, defects of a proposed dairy supply control scheme, and the flaws of deceptively-named “rebate” proposals for Medicare Part D. Today, however, I write to caution you regarding a matter with which NTU is all too familiar: discriminatory taxes on energy.

In an open letter to your panel less than two weeks ago, 37 Members of the U.S. House of Representatives backed what will amount to a $90+ billion energy tax increase to achieve deficit reduction; another letter followed last week from 14 of their Senate colleagues. Both chambers’ communications argue that we “can no longer afford to give away billions of dollars every year to corporations earning billions of dollars in profits and costing American taxpayers twice: at the pump and through the tax code.” As laden as this scheme is with political point-scoring potential, it has been rejected in several forms during the current Congress, and for good reason.

For one, far from being a mere collection of “giveaways” to oil and gas firms, the provisions of law at issue include those available to companies and industries of all kinds, chief among them the Section 199 domestic production activities deduction and the “dual capacity” credit against taxes paid to other entities on operations abroad.  Repealing these commonly-used laws for a subset of industry majors will not improve the efficiency of our Tax Code. Instead, it will raise taxes on an industry that already pays $86 million per day in taxes to the state and federal government. When expressed as a total effective tax rate, analyses of data from Standard & Poor’s, the U.S. Energy Information Administration, and other sources show that American oil and gas companies shoulder a burden heavier than those in many other sectors, often approaching 40 percent. A recent study by energy research firm Wood Mackenzie confirms that similar energy tax grabs, repurposed by the Administration various times throughout its term, could actually reduce overall government revenues by $29 billion through 2020 due to discouraged economic activity.

Interestingly, both letters definitively state that increased taxes on the industry will do nothing to raise the price of gasoline, given that oil and gas prices are set at the international level and the fact that United States production comprises just a fraction of global supplies. This reassurance is strikingly familiar to claims from proponents of the Dodd-Frank financial reform bill and its provisions, including the Durbin amendment, that it would not raise prices for consumers. Yet, as a result of the bill’s regulatory dictates, several institutions have announced plans to impose fees on consumer debit cards. Regardless of particulars, a tax hike on oil and gas firms certainly won’t help to lower prices of gasoline. It is also quite likely that U.S.-based entities would be put at a disadvantage to foreign companies, resulting in reduced employment opportunities and lower returns to millions of shareholders here.

There is a better way forward.  In a recommendation submitted to your panel last month, the National Taxpayers Union and the U.S. Public Interest Research Group (U.S. PIRG) identified more than $1 trillion in spending cuts that would help realize the $1.2 trillion reduction mandate. Although our groups have broad differences over tax and regulatory policy, including the oil and gas tax policies discussed in this letter, we were able to agree on more than $1 trillion worth of wasteful federal spending. Indeed, one of the actions NTU and U.S. PIRG advised was to end the Ultra-Deepwater natural gas and petroleum research program.

Furthermore, we must work to simplify the Tax Code across the board, rather than targeting a select few individuals or companies for punitive treatment. As an NTU letter to Congress on several “disastrous debt reduction ideas” warned:

Revisiting deductions and credits with an eye toward broadening the base and lowering rates across the board (i.e., systemic tax reform) could help U.S. competitiveness. However, singling out certain firms in one sector for punitive treatment is simply a capricious tax increase – which will ultimately drive up prices at the pump, harm job-creation, and hurt our business position abroad.

Members of this committee can demonstrate that Congress is willing to break from the past and put our nation’s finances on a more responsible, sustainable footing. Few actions would signal this determination more clearly than for the committee to reject stale schemes to worsen the tax burden on oil and gas firms. Such proposals will cost jobs, lower domestic energy production, further mangle an already twisted Tax Code, and ironically, cost the government revenue over the long run.

As always, our members stand ready to assist you in your deliberations.

Sincerely,

Pete Sepp
Executive Vice President

 

cc:

Sen. Max Baucus
Rep. Xavier Becerra
Rep. Dave Camp
Rep. James Clyburn
Sen. John Kerry
Sen. John Kyl
Sen. Rob Portman
Sen. Pat Toomey
Red. Fred Upton
Rep. Chris Van Hollen