Misperceptions on Taxes

Mark Green
Posted February 8, 2011

The President raised the issue of taxes on the oil and natural gas industry in his State of the Union speech, and we fully expect they will be part of the budget he will release next week. He also referred to the oil and natural gas industry as "yesterday's energy" and suggested increasing taxes on our industry to pay for investments in tomorrow's energy. While it's not news that we disagree with the President on this point, we believe the administration's approach on taxes is misguided, misleading and simply bad public policy. So, we think it's critical that we address misperceptions around these issues. Such as:

• That our industry is awash in unfair government subsidies; when the fact is that we provide more than $95 million per day to the federal treasury; pay an effective tax rate far higher than most industries; contribute 7.5% of our GDP; employ more than 9 million people; and provide value to tens of millions more who own our companies through mutual funds, IRAs, pension funds, and other investments.
• Or that we're not focused on tomorrow's needs; when the fact is that the oil and natural gas industry have invested more in low- and no-carbon emitting technologies than the federal government, and more than all other private industry; but more importantly our innovations will allow us to provide for the energy reality that oil and natural gas will continue to play a critical role in our economy for decades to come.

We will strongly urge Congress to do what it has done before and reject the increases. We believe that such proposals could cost Americans thousands of jobs and our government billions of dollars in revenue. We think they also could substantially reduce domestic energy production.

The President called for a focus on innovation, job creation, and paying your fair share. Frankly, if the President is serious about creating jobs, we believe he needs to start with the low-hanging fruit. He needs to start with an established industry that's ready and willing to invest more, hire more, and produce more of the energy the nation consumes. Give the oil and natural gas industry the opportunity and it will create more jobs, just as the industry has been doing for a century and a half, while also strengthening our economy and continuing to produce the kind of innovations that benefit every single American citizen today.

Last summer, API commissioned three studies to provide greater insight into the impacts of raising taxes on the industry. Wood Mackenzie, the international research and consulting firm that specializes in the oil and natural gas industry, conducted each of the studies.

The most recent study evaluates what would happen if the government reduced how much foreign income tax payments could offset U.S. tax payments on that same income. It concludes U.S. companies would pay more in taxes than foreign competitors and likely face significant competitive hurdles to investing in foreign oil and gas projects. As a result, U.S. companies would bid on fewer international projects and successfully bid less often. This study also indicates that the proposal could impact the ongoing value of existing operations in the hands of U.S.-based companies. This would cost jobs and revenue back home, and it would essentially cede a large number of oil and gas development opportunities to our foreign competitors. American presence and leadership in oil and natural gas development would erode.

The industry is hopeful the President will recognize the constructive role the oil and natural gas industry plays and will stop vilifying an industry that contributes so much to our economy. The industry stands ready to work in partnership with the administration and with Congress. The industry believes that's what the American people want, and the industry hopes to engage them in this debate to educate everyone as to what is at stake and push public policy in a direction that will create jobs, a strong economy and a vibrant domestic energy industry able to meet the needs of future generations of Americans.

The bottom line is that more taxes on the industry would significantly hurt jobs, revenue and energy security. They would be a negative force on an economy still struggling to recover.