The US oil and gas industry has extra reason to regret the politically motivated shutdown of the federal government. It soon might face a financial avalanche.
The impasse Congress reached on Sept. 30, which remained in effect at this writing, related to the Affordable Care Act—Obamacare. But an even more perilous showdown looms. Unless Congress raises the limit on Treasury Department borrowing from the public, the government, according to Treasury estimates, will become unable to meet some cash obligations about Oct. 17.
The temptation will be strong to treat the debt-ceiling problem merely as an adjustment Congress should take to keep the government in business. The public tired quickly of posturing, brinksmanship, and closed national parks. After the Obamacare fiasco, lawmakers from both political parties will need to restore legitimacy of their institution. Failure to raise the debt ceiling would not only force the government into default and imperil the US economy but also cast doubt on Congress's ability to act on anything. It would be foolish.
The growing debt
Yet raising the debt ceiling would be nearly as bad. On Sept. 17, the Congressional Budget Office, in its 2013 Long-Term Budget Outlook, noted that during 2009-12, "the federal government recorded the largest budget deficits relative to the size of the economy since 1946, causing federal debt to soar." Federal indebtedness to the public is 73% of gross domestic product, "higher than at any point in US history except a brief period around World War II and twice the percentage at yearend 2007." Under current laws, the figure would decline slightly for several years, then rebound and reach 100% of GDP in 2038. And that's before accounting for the debt's effects on the economy. "Moreover," CBO said, "debt would be on an upward path relative to the size of the economy, a trend that could not be sustained indefinitely."
That—not politics as drama or sport—is the context in which the stalemate in Congress should be analyzed.
The oil and gas industry should find this troubling. Historically, when the government craved money it turned, with mixed success, to oil and gas. The US government in 2013 craves money. And the administration of President Barack Obama persistently has proposed to raise taxes on companies of every size in every activity of the business.
For nearly 5 years, the administration has failed to win passage of its most aggressive assaults on oil industry tax mechanisms, such as the expensing of intangible drilling costs and credits for tax-like payments to foreign governments. In general, politicians willing to defend the industry against this raid have been Republican. Now, Republicans are risking credibility in a fight they can't win against Obamacare.
Republican self-defeatism at least is the popular reading of current events. If that interpretation is correct, oil and gas companies soon will become bigger benefactors of the federal government than they are now.
Something else might be happening, though. Obamacare passed Congress by a slim, party-line vote shoved forward by leaders promising to pass the law before knowing its contents. Opinion polls say it's unpopular. And the debt spree documented by the CBO frightens everyone except Americans who don't care and Keynesian economists who see government spending as the one sure route to prosperity. In two important areas, Americans in large numbers feel they've been forced into policies they see as dangerous.
Winners take all
Obama responds to concerns such as these with haughty reminders that he won the presidency and that his party controls the Senate. In his democracy, winners take all, losers be damned. Leadership like that invites revolt. A disabled legislature might indicate a new, volatile stage in American polarization. Caution, by everyone, is in order. For their part, Republicans should recognize that what some people cheer as commitment others disdain as obstinacy.
Voters eventually will fix these problems. Meanwhile, oil and gas companies need good tax advice.