API: Windfall profits tax could harm US economic growth
New taxes on the oil and gas industry could cost hundreds of thousands of jobs, slow down economic growth, and make the US more dependent on foreign energy sources, a new study said on Feb. 3.
WASHINGTON, DC, Feb. 3 -- New taxes on the oil and gas industry could cost hundreds of thousands of jobs, slow down economic growth, and make the US more dependent on foreign energy sources, a new study said on Feb. 3.
The study, which was conducted by CRA International as commissioned by the American Petroleum Institute, said S. 2971, as it was proposed during the 110th Congress, would have imposed a windfall profits tax that likely would have shifted investment from exploration and production and from refining.
"It's ironic that this is promoted as a tax on oil companies. Our study shows that consumers would carry a large proportion of the cost," CRA Vice-Pres. W. David Montgomery told reporters during a teleconference.
In a separate announcement, API said there currently is no proposal for an oil and gas windfall profits tax before Congress, but added that a similar levy or combination of taxes would harm the general US economy in similar ways.
"I can't speculate on what Capitol Hill is going to do. We would hope it doesn't pass new oil and gas taxes. We continue to see posts and calls for taxes on the industry, however, and this study was designed to show what the negative implications would be," API Chief Economist John C. Felmy said during the teleconference.
Montgomery said taxes on any kind of production generally discourage investments. "Anticipation that losses taken when prices are low can be made up when prices are high affects spending decisions. If you can't win when the market is better, the incentive to invest is substantially reduced," he said.
Oil, gas impacts
Specifically, the study said a windfall profits tax on the oil and gas industry could reduce US oil production by 1.5-1.9 million b/d, or 21-26%, during 2010-30. Crude imports would climb by 1.2-1.5 million b/d, or 13-18%, as a result, it indicated.
US gas production potentially would be reduced by 1.6-2.4 tcf/year, or 9-13%, and imports would increase by 500 bcf/year to 1.2 tcf/year, or 14-55%, during the 20-year period, the study continued.
It said an oil and gas windfall levy possibly could cut refining investments to a point that domestic oil product production might drop by 416,000-600,000 b/d, or 2-4%, and oil product imports could grow by 230,000-430,000 b/d, or 15-21%, from 2010 to 2030.
The general US economy would feel negative impacts in several ways, the study concluded. It projected that the legislation as it was proposed would cost 370,000-490,000 jobs nationwide by 2030, with disproportionate impacts in certain US regions.
Greater direct consumer outlays for energy would be magnified by higher transportation and production costs for nonenergy goods, the study noted. It projected that by 2020, US households' total consumption of goods and services could be reduced by roughly $11-26 billion with enactment of an oil and gas windfall profits tax. The reduction potentially would be $20-42 billion by 2030, it added.
The US gross domestic product would be reduced by $140-240 billion, or 0.5-0.9%, by 2030 as a result, the study said. "If you're going to impose taxes on supplies, it's going to reduce demand. There's no 'could' on that. I'm as confident about that as I am about the sun rising tomorrow morning," Montgomery said.
Contact Nick Snow at email@example.com.