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Sen. Menendez's Oil Tax Bill Fails to Grasp Causes of Energy, Debt Crises


Posted by Cory Eucalitto on Monday, May 16th, 2011, 3:44 PM PERMALINK


With average gas prices hovering around $4.00 per gallon, Democrats in Washington are proposing dramatic solutions to the current energy crisis. Surprise! They want to raise taxes. Senator Robert Menendez [D-NJ] is leading the Democratic charge with the Close Big Oil Tax Loopholes Act of 2011 (S. 258).

The bills supporters argue that it is necessary for two reasons:

1. Gas prices are too high

2. Washington needs more money

The bill fails to recognize the simple fact that our country’s debt problems are a product of over-spending, not under-taxing. Meanwhile, Congressional Republicans have, with the support of ATR, passed a series of three bills designed to expand American energy development.

So what exactly would Menendez’s bill do to address skyrocketing costs at the pump? First, it would repeal Section 199- the domestic manufacturing tax deduction - for oil and gas companies only. It would eliminate the tax deduction for intangible drilling costs, as well as several other drilling related deductions. Finally, it would limit the credit that U.S. oil companies employ on taxes paid abroad.

All of this is supported in the name of eliminating “subsidies” for oil and gas companies. Despite the strongest assertions of Democratic politicians, such as Rep. Steve Israel [D-NY] in this interview with MSNBC, the oil and natural gas industries do not receive a dime in federal subsidies. Arguing that they do requires flawed logic- that the government not taking someone’s money is somehow the same thing as spending money. Instead, the bill will eliminate tax deductions and credits enjoyed by countless other industries in an exact or similar manner. Section 199, a domestic manufacturing deduction first put into place in 2004, applies to all forms of domestic manufacturing. Democrats want to eliminate it for oil companies. The tax deduction for intangible drilling costs that would be eliminated is remarkably similar to the research and development credit enjoyed by, for example, pharmaceutical companies.

The elimination of these deductions and credits is nothing less than a massive tax hike on a vital sector of American industry. The facts are simple: raising the cost of exploration will only raise the price of oil and gas. This puts the 9.2 million domestic jobs supported by the oil and gas industry at risk. It directly harms the many Americans who rely on oil stocks through individual investment, pension funds, or IRAs. It does nothing to kick start America’s energy economy to spur economic development and job growth.

Finally, support for this bill requires a mistaken understanding of the root of the nation’s fiscal troubles. We face massive and growing debt not as a result of under-taxation, but because of over-spending. The choice, as Rep. Israel would have you believe in this same interview, is not between raising taxes on oil companies and eliminating Medicare entirely. Raising taxes on oil companies by eliminating deductions and credits, however fair or unfair that may be, will not make a dent in the country’s ever growing deficit. The numbers simply do not add up. It will, however, destroy countless American jobs and make oil and gas production more costly.

This is the choice being presented to the American people. We can support the demonization of successful industry along with higher taxes and more pain at the pump. Or, we can support serious solutions to get the American energy economy moving.

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