ECONOMIC STIMULUS FADES AS ECONOMIC PANIC SUBSIDES

Partisan politics and an easing of panic stymied economic stimulus legislation in the US the week before Christmas.

The economy showed hints of recovery, so lawmakers backed away from rapidly escalating political fights over tax cuts and federal handouts.

The immediate consequences are probably neutral. With a political year looming and partisanship returning to normal, chances for economic harm from congressional stimulation were roughly equivalent to chances for help.

But panic's role as a prerequisite for congressional attention to problems is reason for the oil and gas industry to worry.

Now there's talk that the energy bill delayed until 2002 will die for lack of interest. Oil prices are low, so why should Congress worry about energy?

This isn't good. Lack of action on energy issues, especially tax policy, heralds the next crisis.

US drilling is falling. A year ago, when it was rising, operators worried about keeping up with demand for natural gas.

But economic problems flattened demand, so gas inventories swelled, depressing prices. Drilling followed suit.

That's economics. That's what should happen.

Yet tax policies affecting drilling aggravate the responses. This is especially so with corporate alternative minimum tax (AMT), which a House version of economic stimulus would have repealed.

Inevitably in politics, AMT repair-along with other tax changes important to producers such as expensing of geological and geophysical expenses and delay rentals-gets portrayed as favors for big companies.

The demagoguery works. It's much easier to make taxpayers believe that AMT repeal would be a giveaway to corporations than is to explain why AMT is an economic perversion that needs killing.

Corporate AMT took effect in 1986 to squeeze income tax out of companies with large deductions. For many companies, it raises tax liability when profits are low. It thus aggravates recession.

Oil and gas producers typically pay AMT because of its treatment of inventories, intangible drilling and development costs, and depreciation. Now, while oil and gas prices are low, many face growing AMT liability.

So a drilling slump that would happen anyway because of price movements will be deeper than it needs to be because of tax mistakes Congress failed to correct.

And about the time the economy starts to recover, if current signs are right, there won't be enough production of natural gas to avoid a strong draw on inventories and sharp increase in price.

These cycles have become uncomfortably extreme. Part of the reason is that politicians don't address energy problems unless they're in a panic over prices.

(Contact the author at bobt@ogjonline.com)

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