As prepared for delivery
Press briefing teleconference on taxes on the oil and natural gas industry
Brian Johnson, API senior tax policy advisor, Thursday, November 17, 2011
Opening statement:
Good morning everyone and thank you for calling in.
With the Nov. 23rd deadline for the Super Committee drawing closer, we wanted to provide an opportunity to talk with you about the issue of raising taxes on our industry.
API does not know what the Super Committee will decide, but because proponents of targeting our industry for higher taxes are likely to continue pushing the idea, we think it's important for everyone, including the public and Congress, to understand what's really at stake.
We also want to take every opportunity to reinforce the idea that the oil and natural gas industry can be part of the solution to our national jobs crisis and deficit reduction, the exact issues Congress and the Super Committee are addressing. We're one of the few industries that have created jobs throughout the recession, and we generate about $86 million every day in federal revenue and could do much more of both with the right policies.
It's important in considering tax policy affecting our industry to keep some key facts in mind:
- We pay more in total corporate taxes than any other industry sector.
- We provide more revenue to the federal Treasury than any other industry sector.
- Our effective tax rate in 2010 averaged 41.1% compared to 26.5% for the other Industrials.
- Our earnings per dollar sold are actually lower than the national manufacturing average.
- Our tax deductions and cost recovery mechanisms are like those available to all other industries in fact, in some cases, our industry is treated worse.
- Finally, we do not receive taxpayer subsidies, and there is one specific credit in the tax code available to our industry.
Those are the facts.
We understand that the Super Committee is searching for ways to increase revenue, and we're open to discussing broad tax reform that preserves the cost recovery mechanisms that are part of the bedrock of a national income tax system and critical to future investment in new production and new jobs.
But it makes no sense to target for higher taxes an industry that is an engine of job creation and revenue generation. In 2010 we directly contributed more than $470 billion to the U.S. economy in spending, wages and dividends. That half the amount of the 2009 "stimulus" package.
In late 2010 Wood Mackenzie looked at what would happen if Congress tampered with the section 199 manufacturing deduction and the expensing of intangible drilling costs.
The section 199 deduction, by the way, allows all U.S. manufacturers – including newspaper publishers – to deduct 9% of their qualified income, but is already reduced to only 6% for the oil and natural gas industry. However, Congress is not talking about taking it away for any other industry. And the intangible drilling cost deduction is simply the way our industry recovers our costs, about 60% to 80% of which are labor costs. Other industries also have tax provisions that allow them to recover labor or business costs through research and development deductions.
Eliminating the Section 199 deduction or the deduction for Intangible Drilling Costs could decrease investment in new domestic oil and natural gas development. It could jeopardize 165,000 jobs by 2020 and more than 10 percent of U.S. oil and natural gas productive capacity by 2017, according to Wood Mackenzie. This could result in about $10 billion to $17 billion of U.S. capital investment put at risk.
A political decision to favor one type of industry over another through our tax code, or to single out a single industry – or a handful of companies, as has been suggested for the five largest oil and natural gas producers is not a serious tax strategy, and it will not address our deficit or unemployment challenges. Over the longer term, higher taxes would diminish revenue to government because development and production would be reduced, which would reduce taxable income and royalties while increasing our reliance on imported energy.
We stand ready, willing and able to be a critical part of our budget, energy and economic challenges. But policy matters, which is why it is important to highlight some of the ill-conceived tax advice being given to the super committee.
Now, I'd be happy to answer your questions.