Sometimes the best defense against hand grenades is interdiction of the armory. The US oil and gas industry should consider such a strategy for the tax grenades headed its way. In his weekly address Feb. 23, President Barack Obama reaffirmed his assault on oil and gas. He underscored the point while including the industry among villains in a campaign of polarization.
"Are [Republicans] really willing to slash military health care and the border patrol just because they refuse to eliminate tax breaks for big oil companies?" Obama asked. "Are they seriously prepared to inflict more pain on the middle class because they refuse to ask anything more of those at the very top?"
Two messages
The president delivered two important messages here. One, which will surprise no one, is that his budget proposal this year will call again for the elimination of tax measures important to oil companies of all sizes, not just big ones. The other message is that Obama wants, above all else, to disarm Republicans. The industry must address both.
It must, of course, continue to highlight the misrepresentations on which Obama bases his tax proposals. An accounting mechanism isn't a subsidy just because it applies to an unpopular industry. In fact, many of the measures Obama targets relate simply to the timing of charges against earnings in calculations of tax liability—not to the amount of liability.
The two proposals most important to the biggest oil companies affect a credit and deduction available to companies in other industries—and for sound economic reasons. When all payments to the government are counted, large oil and gas companies pay taxes at marginal rates higher than companies in most other businesses. The targeted measures of most concern to independent oil and gas producers would, if implemented, slash drilling investment. They thus would damp one of the US economy's few areas of solid growth and restrict the most promising development in energy supply in decades. Why would the president want to do that?
As it presses its arguments in these areas, the industry also should attack Obama's broader populist context. The president's Feb. 23 address and the following fear-mongering over automatic spending cuts scheduled for Mar. 1 had to do more with smearing Republicans than with serious policy.
"These cuts don't have to happen," Obama said. "Congress can turn them off anytime with just a little compromise. They can pass a balanced plan for deficit reduction. They can cut spending in a smart way and close wasteful tax loopholes for the well-off and well-connected." Oil companies, the president made clear, belong in those categories. "Unfortunately," he went on, "it appears that Republicans in Congress have decided that instead of compromising–instead of asking anything of the wealthiest Americans–they would rather let these cuts fall squarely on the middle class."
Deficit-reduction, the president suggests, would be easy if Republicans weren't in the way. Close a few loopholes, raise taxes on a few rich people, and—presto! No more deficit.
State-centered experiment
Deficit-reduction is never that easy. And the problem isn't obstructionism by the political opposition. Republicans didn't set the US on a course of frenzied spending and egregious regulation. Obama did. Obama has gambled the US economy on a state-centered experiment that his opponents see as not just incorrect but altogether dangerous. Against a radical political agenda, "a little compromise" has no constructive effect. Opponents of such an agenda deserve no condemnation for standing their ground.
Obama cares no more about compromise than he cares about deficit-reduction. Naked exaggeration and brazen blame-shifting have made his priority clear: He just wants to shred the opposition. Without a Republican stronghold in the House of Representatives to resist his extremism, solving the nation's problems would be as easy as he wants everyone to believe cutting the deficit can be. The solutions would be his solutions, of course—and, for the oil and gas industry, very costly.