The American Petroleum Institute launched a new campaign to educate consumers in seven states about the consequences of increasing oil and gas production costs as the US Senate headed toward a vote on legislation that would repeal federal tax provisions for the industry. "Some bad ideas never seem to go away," API Tax Policy Manager Stephen Comstock told reporters during a Mar. 26 teleconference.
API said new print and radio ads would run in Missouri, Massachusetts, West Virginia, Virginia, North Carolina, Maine, and Nevada encouraging voters to contact their US senators and urge them to reject new taxes on the industry. "Raising taxes will not lower energy prices for American families and businesses. In fact, the Congressional Research Service says this plan could cause gasoline prices to go higher," API Pres. Jack N. Gerard said Mar. 26.
The bill before the Senate, S. 2204, would repeal what its sponsor, Robert Menendez (D-NJ), called "Big Oil tax loopholes" by denying the five biggest oil companies the Section 199 federal tax deduction available to other US manufacturers, limit their use of the foreign tax credit, and prevent their using the percentage depletion allowance and deductions for tertiary injectants for intangible drilling and development costs.
The measure also would repeal provisions in the 2005 Energy Policy Act that provided deep gas production incentives and mandatory royalty relief for certain deepwater oil and gas production. Its first title, meanwhile, would extend tax credits for plug-in electric vehicles, alternative fuel vehicle refueling property, cellulosic biofuel production, and production of electricity from wind and other nonfossil fuel sources.
Menendez said the Senate's scheduled vote the afternoon of Mar. 26 on whether to move his bill forward would come as motorists paid more than $4/gal for regular gasoline while major oil companies reported record profits. "Let me be very clear: Monday's vote to repeal Big Oil tax subsidies is the Big Test, and Americans will decide who passes and who fails," he said on Mar. 23. "It's time to stand up for real families and stand up to Big Oil."
Politics, not policy
Comstock suggested that the bill simply amalgamates two previous bills rejected by the Senate. "We certainly see it being raised because the president has made it part of his reelection campaign," he said. "We see it as being more about politics than policy."
Comstock challenged statements that high profits justify increasing oil and gas taxes to make those companies pay their fair share. The industry already pays more than $30 billion/year in federal taxes, and contributed more than $470 billion to the US economy during 2010 in the form of capital expenditures, payroll, and dividends to shareholders, Comstock said.
He also questioned characterizing as subsidies what actually are tax deductions similar to what other industries routinely take. "More important, the industry pays more in taxes than any other industry, and its effective tax rate is substantially higher than the average for the other S&P Industrials—41% vs. 26%," he added.
The proposal would steer investment overseas by discouraging domestic expenditures, Comstock maintained. He cited a 2011 Wood Mackenzie study that concluded that raising oil and gas industry taxes would increase federal revenue initially, but cause it to plummet after 5 years and lead to a cumulative $65 billion shortfall after 20 years.
"Wood Mackenzie's analysis also envisions a loss of nearly 50,000 jobs within a few years, with potential reduction in oil equivalent production of 700,000 b/d in less than 10 years," he said. "That implies more dependence on foreign oil and an increase in our trade deficit."
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