API to deliver anti-tax, pro-production message to Congress

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, May 3 -- The American Petroleum Institute will strongly urge Congress in coming weeks to enact policies that encourage more US exploration and production instead of simply raising oil and gas taxes, API Pres. Jack N. Gerard said. “Our government doesn‘t support our industry, our industry supports our government to the tune of over $85 million/day,” he told reporters during a May 3 teleconference.

“Raising taxes by billions of dollars a year would jeopardize the many benefits we bring to this nation,” Gerard continued, adding, “It would substantially raise costs and drive operations and jobs elsewhere. Higher taxes would do nothing to reduce gasoline prices. Supporters of higher taxes have a vision of our energy future that is out of sync with our energy reality, and with the administration’s vision of our energy future which recognizes heavy reliance on oil and gas for decades to come.”

Gerard spoke 5 days after US Senate Finance Committee Chairman Max Baucus (D-Mont.) released a “blueprint for action” that he said would repeal billions of dollars in tax incentives for the five major oil companies to promote demand for domestically produced energy, encourage the use of fuel efficient vehicles, and invest in clean energy infrastructure.

Baucus said his proposal’s oil and gas tax credit repeals would include the manufacturers’ credit under federal tax code Section 199, which Congress revised in 2004 to offset subsidies foreign manufacturers receive from their governments. Excluding the US oil and gas industry from the credit would raise an estimated $902 million in fiscal 2012 and $18.26 billion over 10 years, the White House Office of Management and Budget said on Feb. 14.

‘Boost every option’
"While we can't lower [gasoline] prices overnight, my plan will proactively move our nation toward reducing our dependence on foreign oil so that we can take control of our energy future,” Baucus said on Apr. 28. “We need a long-term plan that will boost every option to give consumers a break while making sure oil companies are paying their fair share."

While declining to comment directly on the Baucus proposals’ impacts on the nation’s five biggest oil companies, Gerard said that shifting the focus from independent producers that would be affected by provisions in the Obama administration’s fiscal 2012 budget request is still a mistake.

“A job produced by one of the Big 5 or Low 10 is still a great job,” he declared. “Recent analysis shows that on the exploration and production side, our employees are paid about twice as much as the average US worker. We create significant economic benefits. We don’t get there by demonizing specific companies or a segment of our industry.”

Gerard said he understood US Senate Majority Leader Harry N. Reid (D-Nev.) apparently plans to delay introducing a bill to repeal federal oil tax incentives for a week because of Osama Bin Laden’s death, but probably will bring the matter up at a politically opportune time.

‘A distraction’
“The tax proposals are being used as a distraction to take us away from the administration’s ineffective energy policy,” Gerard said, adding, “We need to produce additional domestic supplies to replace demand at the margins. The bigger question is why, at a time of recession, we would discourage American companies investing in America, particularly when they provide so many jobs and government revenue. The net effect of raising taxes is to raise costs and discourage investment in America.”

In a May 2 posting to the National Journal’s Energy & Environment Expert Blog, National Petrochemical & Refiners Association Pres. Charles T. Drevna noted that it is important to recognize the difference between subsidies and tax deductions. Refiners and producers simply get the same kind of deductions other businesses receive, he explained.

“Webster’s New Universal Unabridged Dictionary defines a subsidy as ‘a direct pecuniary aid furnished by a government to a private industrial undertaking, a charity organization, or the like’,” he said. “An example of a subsidy would be the $6 billion the US government pays the corn ethanol industry each year, or the $7,500 the government pays individuals who buy an electric car.

“A tax deduction is something quite different,” Drevna maintained. “The same dictionary defines a tax deduction as ‘an expenditure that is deducted from taxable income.’”

Contact Nick Snow at nicks@pennwell.com.

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