• Energy Tax Facts
  • 16 Aug 13

Detroit News (Op-Ed): Overtaxing energy industry could slow economy

The energy industry is adding to the U.S. economic recovery with the International Energy Agency predicting that we will be the largest producer of crude oil by 2020. The unemployment rate in North Dakota is 3.1 percent and 3.9 percent in South Dakota due to the expanding oil industry.

Yet the Obama administration continues to call for selective tax increases on the oil industry that would hamper this economic engine. While there is good reason to simplify the tax code, the administration is instead targeting a particular industry.

One example is the repeal of what is known as intangible drilling costs, such as site preparation, that can be up to 80 percent of the cost of a well. This deduction has been available since 1913 and its repeal would increase oil prices and discourage domestic exploration.

A second example is the repeal for only oil and gas companies of a deduction that Congress enacted in 2004. The deduction is available for domestic production for manufacturing for a number of industries, including extractive ones. While one may question whether the Section 199 deduction is efficient tax policy, it surely is not efficient to eliminate it for one particular industry.

A third example is the re-enactment of Super Fund taxes that would fall most heavily on the oil and gas industry although its products are not responsible for a significant portion of Superfund liability.

There are several other components to the administration’s selective taxation of the oil and gas industry, leading to a total cost of more than $90 billion. It does not make sense to impose taxes on an industry that is helping a economy struggling to grow.

More than four years into the recovery, the economy has grown at less than 2 percent in each of the last three quarters.

Much of the problem is due to uncertainty in what the rules of the game are, thus discouraging domestic investment. The uncertainty of governmental actions is a significant reason that investment as a percentage of gross domestic product has fallen from 18.2 percent in the second quarter of 2002 to 15.7 percent in the last quarter.

Oil and gas exploration has bucked this trend. Yet the administration continues to single out the industry for increased taxation, threatening to further dampen the economic recovery.