CLINTON PLAN WOULD HASTEN U.S. OIL EXIT

It used to be a hypothetical game and nothing more, one of those imaginative extensions of current trends into the absurd. It looked at the swift emigration from the U.S. of major oil company capital and operations and asked this question: If the trend continues, how long will it take for companies now based in the U.S. to move their headquarters, too? Absurd, right? Maybe. But the apparent Democratic presidential nominee has proposed a tax scheme that would shorten the distance between

July 6, 1992

3 min read

Absurd, right? Maybe. But the apparent Democratic presidential nominee has proposed a tax scheme that would shorten the distance between current reality and what should be unimaginable.

EFFECTS ON THE FUTURE

Movement of petroleum capital, jobs, and operations away from the U.S. already has cut deeply into the domestic industry's future. Much of the service and supply base has moved to keep up with business. Petroleum technical education, at which the U.S. for so long excelled, is suffering. In the U.S., petroleum industry careers must look less and less appealing except to students who want to live abroad.

Industry decision makers recognize the long term costs to the U.S. and the U.S. industry. They're moving anyway because the U.S. is an increasingly difficult country in which to conduct oil and gas business. Upstream operations, first and easiest to move abroad, have been pummeled by land access, tax, and other political problems. Environmental laws and regulations turn accidents into crimes punishable by imprisonment. And the climate worsens with time. A bill in the House of Representatives would subject drilling and production refuse to cradle-to-grave hazardous waste regulation, jeopardizing most U.S. production.

The downstream business faces its own threats. Refiners must make immediate plans for major investments to comply with new, strict fuel requirements. Yet rules remain unclear, and permit problems may delay or preclude work at some plants. Refinery shutdowns announced so far probably represent just the beginning of a trend. Overseas, less-encumbered refiners are adding distillation and conversion capacity to make fuels meeting U.S. specifications. Downstream industry leaders predict an emigration of jobs and capital like that of the upstream business.

Into this sad state of affairs Arkansas Gov. Bill Clinton would shove tax changes aimed at keeping investments in the U.S. but certain to do more harm than good. He would sharply raise taxes on the U.S. incomes of non-U.S. investors, which of course would reduce the amount of capital in the country. And he would revoke a deferral of taxes on income U.S. companies earn and reinvest overseas, thinking the move would encourage the companies to build plants at home instead of abroad.

COSTS OF A U.S. ADDRESS

Where would that leave a typical integrated oil company based in the U.S.? Already the company has moved much of its upstream operations away. Already it is questioning the wisdom of investing millions of dollars unprofitably for the mere privilege of making fuel for U.S. motorists. Now a U.S. address would have two new costs: the diminishing ability to work in the U.S. with foreign partners and sharply higher taxes on income from installations abroad.

Is it worth it? Some companies might consider it better business, under current conditions, simply to change address. This cannot be what Clinton has in mind. That a presidential contender can even consider such a xenophobic proposal reflects modern American disregard for such economic essentials as international capital flows and energy. Clinton and other presidential hopefuls can watch major oil companies to see where trends like these lead.