• Energy Tax Facts
  • 8 Apr 13

Get the Facts on Energy Taxes

As the conversation about our nation’s budget continues on, the issue of taxes and subsidies is often at the front lines of debate. Unfortunately, the real facts surrounding American energy are often left on the sidelines.

In reality, America’s oil and natural gas producers do not receive a single dollar in taxpayer subsidies. In fact, America’s 7,000-plus independent oil and natural gas producers — businesses with an average of just 12 employees that drill more than 90 percent of our nation’s oil and gas wells — receive many of the same federal tax provisions provided to a broad range of other industries, including Starbucks, Apple and almost every domestic manufacturer. In the most basic terms, oil and natural gas tax credits are not handouts, rather provisions aimed at encouraging further reinvestment in American energy development, and of course continued job creation and more government revenues.

But despite the hard and true facts, these important provisions get categorized as subsidies and tax breaks. Take a recent column in The Atlantic. The piece insisted that these “breaks” needed to go, even referring to them as “goofy” and “outdated.” Unfortunately for The Atlantic’s readers, the article avoids the fact that targeting deductions such as intangible drilling costs and percentage depletion will actually harm and potentially closedown small businesses, while cutting jobs and reducing state and federal revenues generated through energy development.

And despite the overuse of “Big Oil” rhetoric, our nation’s smallest wells make up a significant portion of American energy output with 20 percent of U.S. oil production from wells averaging 2 barrels of oil/day. These are not the wells of large, integrated companies, but of small independents — producers who could not economically operate without the appropriate tax structure as the capital costs of exploration and production are exceedingly high.

As Louis D. D’Amico, president/executive director of the Pennsylvania Independent Oil & Gas Association (PIOGA), discussed last week in the Delaware County Times, targeting these producers is not going to help the American economy – it will hurt it.

“By berating the oil and gas industry, {the Administration} might win political points with his most ardent supporters, but he risks doing harm to the very people he wants to protect — the middle class. They won’t be helped by adding to the industry’s taxes and raising the cost of producing vital energy supplies. Furthermore, closing so-called loopholes won’t make a dent in the burgeoning budget deficit.”

Without the ability to deduct some of these costs – again, the same deductions provided to a broad range of other industries including almost every domestic manufacturer – America’s small independent producers will not be able produce the energy we all rely upon. Putting these small operators out of business, and thus removing the volumes they produce from the U.S. oil market, just as we are beginning to take control of our energy destiny by increasing American production and decreasing imports would harm the nation economically and strategically.