Townhall...
Blame Taxes, not “Big
Oil”
By Andrew Moylan
Politics often mimics theater. And – displaying elements of drama,
intrigue, and a fair bit of fantasy – this month’s elaborate production
by Senate Democrats to frame oil companies as the reason for high gas
prices merits a Tony nomination.
Beyond entertainment, the push to single out U.S. oil and gas firms for
additional tax burdens holds little value.
In fact, if the Senate were to pass the kind of proposal it voted on
this week, the Congressional Research Service warns that American
consumers would face higher energy costs and greater reliance on
imports. Echoing that concern, S&P notes the public will ultimately
pay the price in limited supplies and rising prices for lawmakers
playing politics with energy policy.
Washington’s debate over so-called oil “subsidies” signifies a
fundamental misunderstanding about who pays taxes in America.
University of Michigan economist Mark Perry emphasizes that real
people, not corporations, ultimately pay taxes. Higher taxes on any
industry – particularly a sector such as energy which feeds into every
aspect of our economy – translate to higher prices for consumers, lower
wages and fewer jobs for employees, and/or lower returns for
shareholders.
These realities hardly qualify as common knowledge. And because taxes
are a very complex issue, special interest groups can easily exploit
public confusion. The liberal-leaning Center for American Progress, for
example, tries to paint major oil companies’ tax burden as “lower than
the average American’s.” Yet, federal data shows that’s just not the
case.
A 2008 report by the U.S. Energy Information Agency shows the 27 major
energy producing companies surveyed bear an effective tax rate of 40
percent – a whopping 14 percentage points more than the average rate of
all U.S. manufacturers. The American Petroleum Institute reports that
for 2010, oil and gas companies paid effective income taxes of more
than 41 percent.
Though activists highlight high overall profits in their screeds, the
oil sector’s net profit margins after accounting for expenses are
actually rather ordinary. The integrated oil and gas industry averages
a profit of 6.2 cents per dollar of sales, putting it squarely in the
middle of all other industries based on profitability, and lower even
than the steel industry which just a few years back convinced President
Bush to implement harmful import tariffs to protect them from
competition.
Even the basic rhetoric deployed by President Obama and his allies in
Congress is misleading. Contrary to the soundbytes, the broadly
available tax provisions under attack in the Senate bill are not
special “subsidies” from taxpayers because they don’t account for a
single cent in federal spending. What’s more, their removal would
likely not help to reduce our national debt since Democrats have
expressed their hope to use the money raised from these tax hikes to
subsidize unproven “green” technologies.
One such “subsidy” is actually a credit known as Section 199 and
applies to all domestic producers -- from music producers to soft drink
manufacturers. Note that the Finance Committee has yet to call Sony or
Coca-Cola to testify on the massive “subisidies” they’re receiving
through perfectly legitimate tax credits.
Another target is the “dual capacity” protection, which prevents
American firms from being taxed twice on income earned abroad. If the
IRS were to double tax U.S. multinationals, they would be put at an
enormous competitive disadvantage. Even after these deductions, U.S.
oil and gas firms contribute billions each year to local, state, and
federal coffers.
Oil companies may make for a convenient scapegoat, but the bottom line
is that increasing taxes on American energy is a recipe for higher
prices, reduced supplies, fewer jobs and questionable impact on
reducing our national debt.
Andrew Moylan is the vice president of Government Affairs for the
National Taxpayers Union.
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