Congressman Pete Olson

Representing the 22nd District of Texas

Oil and Gas Tax Hikes Would Kill Job Expansion

May 5, 2011

Oil and Gas Tax Hikes Would Kill Job Expansion
Rep. Pete Olson
Thursday, May 5, 2011

As gas prices continue to escalate and headlines scream about Washington battles over how to manage our nation's rising debt, many have called for tax hikes on the oil and gas industry.  It may seem logical in the face of high profits to punish the energy industry through higher taxes, but here is a look at why that's a bad idea. 

President Obama has proposed almost $90 billion in tax hikes on the U.S. oil and natural gas industry. Many of these tax hikes would eliminate common tax deductions that help small, independent operators offset high upfront costs and incentivize domestic production.  Repeal of a manufacturing deduction that was designed specifically to encourage job expansion would put hundreds of thousands of U.S. energy jobs in jeopardy.  Small, U.S. mineral right owners are also eligible for a narrow percentage depletion income tax deduction. Eliminating this deduction would raise costs and hinder investment in maintaining and developing American energy production.

Common sense tells us that increasing taxes will lead to an an automatic increase in the already high price of gasoline. Studies have also shown discouraging oil and natural gas production will lead to fewer American jobs, increase our reliance on foreign imports and increase energy costs for consumers. 

The kind of tax hikes the President is calling for will also disproportionately impact smaller, independent energy producers. The average independent producer employs only 11 employees and yet, they produce 90% of US wells. These tax increases mean less capital investment which results in fewer jobs and less production of American resources. Any loss in production also directly impacts the federal government’s second largest source of revenue – taxes paid by the oil and gas industry.

The oil and natural gas industry is one of the largest U.S. employers, which supports more than 9.2 million jobs, contributes 7.5% to GDP, and contributes almost $100 million a day to the federal treasury. In Houston, over 113,000 people depend directly on American energy production for their paychecks. 

President Obama may think he’s punishing CEOs of big companies, but his plan will hurt the everyday consumer of energy and imperil the jobs of millions of hardworking Americans.  It also places the pensions of teachers, firefighters and other state pensioners at risk. A recent study determined that in the two biggest pension funds in several states - for school employees and state government workers - returns on investments in oil and natural gas from 2005 to 2009 averaged 46.5 percent, compared to 13 percent for all other assets.

Furthermore, in spite of false claims to the contrary - American energy companies do pay their fair share of taxes.   Three major U.S. energy producers in this country pay tax rates over 40% and from 1980 - 2008 major energy producers paid over $1 trillion to federal coffers.   If we do consider phasing out the depletion deduction for large companies, it should be done in the context of overall tax reform, specifically lowering the corporate tax rate and providing fair treatment of income earned by U.S. companies overseas.  These reforms will spur economic growth, employ more Americans and make it easier for American companies to compete with their foreign rivals. 

Tax hikes on energy producers will merely increase production and energy costs, further restrict our domestic energy supply and cost American jobs.  It will not fix our nation's energy problems and it will not fix an insatiable spending habit.  A better solution is increasing domestic energy production and reducing the overall federal income tax rate on American corporations in order to create an economic climate that allows business to prosper. At 35 percent, the U.S. has one of the highest statutory corporate tax rates in the industrialized world. These proposals will address our energy needs and put our nation on a path for economic stability and security.