Chamber study blasts proposals to increase oil and gas taxes, fees

Imposing $80 billion of new taxes and fees on the oil and gas industry would increase US dependence on foreign oil, raise costs to consumers, jeopardize US jobs, and erode the US economy, a new US Chamber of Commerce report said.

The report, “Taxing Our Way to Energy Insecurity Again,” was released June 18 by the Chamber’s Institute for 21st Century Energy. It examines proposals the Obama administration made in its fiscal 2010 budget request which include repeals of the percentage depletion allowance, expensing of intangible drilling costs, the enhanced oil recovery credit, the marginal oil and gas well tax credit, and other incentives.

The White House also proposed denying oil and gas companies a tax deduction which is available to other US manufacturers, placing an excise tax on new Gulf of Mexico production, and extending the amortization period for independent producers’ geological and geophysical costs to seven from five years.

The report said that in addition to the administration’s proposals, US House Natural Resources Committee Chairman Nick J. Rahall (D-W.Va.) introduced draft legislation in late May which would increase fees and regulatory bureaucracy associated with domestic oil and gas production. His provisions would cut the initial lease period in half, effectively doubling the cost of new leases; increase the minimum royalty rate, and impose new fees on non-producing leases, it said.

“All of the proposed new taxes, fees and regulatory hurdles have one thing in common: They will increase the cost of producing domestic oil and natural gas,” the report said.

‘Contrary to principles’

Congress is currently weighing both sets of proposals, it noted. “We need more American sources of energy, not less, and that requires a balanced approach that is both fair to producers and provides reliable and affordable energy to American families. These new taxes run contrary to those fundamental principles,” said Karen A. Harbert, president of the Chamber’s Energy Institute.

The report reviews impacts of the crude oil windfall profits tax in the early 1980s which the Congressional Research Service said in a 2006 report actually decreased domestic production by 8% and increased imports by 13%.

“In 1986, imported oil as a share of total US consumption jumped from 32% to 38% from the previous year. This 19% increase is one of the largest annual increases on record and one of the primary reasons the WPT was ultimately repealed in 1988,” the Institute’s new study said.

New oil and gas taxes and fees also would make the United States less attractive for energy investments compared to projects outside the country, it indicated. It said that since the US imports 60% of the crude oil it consumes, discouraging domestic oil and gas investment would encourage reliance on foreign sources and place foreign national oil companies at a competitive advantage.

It pointed out that more than 6 million people work in the US oil and gas industry, many of them in small and mid-sized businesses. Some of these well-paying jobs could be at risk if companies are forced to increase operating expenses to pay new taxes and fees, it warned.

“History has demonstrated that arbitrary tax increases that raise the cost of doing business in this country are counter-productive, failing to achieve stated long-term goals of creating permanent jobs, supplying affordable domestic energy, and increasing overall energy security,” the report observed. “Moreover, close scrutiny demonstrates that such policies are likely to create harmful unintended consequences like increased oil imports, significant job losses, and more expensive energy bills.”

The report is available at the Institute’s website, www.energyxxi.org.

Contact Nick Snow at nicks@pennwell.com  

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