• Energy Tax Facts
  • 29 May 13

Viewpoint: Don’t add taxes to energy producers

Sen. Max Baucus’s announcement that he would not seek another term has touched off a flurry of speculation among Washington’s pundit class about the impact of his retirement. But beyond “inside baseball” discussions about electoral fortunes of his would-be successors, what does Baucus’s departure mean for the issue of tax reform? After all, he has often been regarded as a political moderate whose tenure as Finance Committee Chairman was highly influential.

For hard-pressed working families and businesses struggling to grow and create jobs, the question is not academic. Presently, with Baucus no longer facing what could have been a tough 2014 campaign, the focus shifts to what kind of tax reform becomes likely now that the clock is winding down on his deal-making ability. This in turn cuts across many other debates, from the “sequester” spending pullbacks to the problem of how to get our country’s debt under control.

On energy, a sector near and dear to the interests of resource-rich western states like Montana, Baucus’s past actions have often allied him with the Obama Administration’s long-running campaign to impose targeted tax increases on domestic oil and gas producers. The President’s proposed fiscal year 2014 budget calls for more than $40 billion in punitive new taxes on one of the few sectors currently producing good-paying new jobs and delivering more revenues for governments.

Just ask anyone working in the Bakken Shale about that, and especially ask government officials. Because of the energy boom, North Dakota – Montana’s neighbor to the east – estimated last fall that it is expecting a $1.6 billion surplus over its two-year budgeting cycle. The Bakken – and other energy deposits – have also helped to boost economic vitality across Montana for years.

You would think that with this sort of energy-related wealth creation, shared widely by workers, property owners, and businesses of all sizes, the White House would recognize the harmful effects of punitively taxing oil and gas producers. President Obama – and alas, it seems, Sen. Baucus – ought to be asking themselves: do we really want to hamstring an industry that is driving this sort of growth and giving the country a real shot at becoming a net energy exporter?

Perhaps suspecting that billions in new taxes blatantly imposed on American firms would strike the wrong chord with more than a few job-conscious voters, the Administration has instead engaged in a game of political word play. The President claims to be seeking elimination of “subsidies” and “corporate welfare” for energy companies that are doing well. But American oil and gas producers don’t receive “subsidies” such as loans or grants from other taxpayers’ pockets (that’s for pet green energy startups with political connections). And the administration never provides a logical explanation for why it is targeting only oil and gas to be stripped of tax relief provisions (like the Section 199 manufacturing deduction) that many other industries have available to them. As it is, the U.S. oil and gas industry already pays an average tax rate of 41 percent, compared to the 26.5 percent average for the rest of the S&P industrial group.

If we’re going to have, as the President is fond of calling it, an “adult conversation” on tax policy, we need to accurately describe the tax measures in question. What’s more, we’ll have to talk about tax reform in a comprehensive fashion. Let’s craft an overhaul package that benefits all rather than punishes the few. Let’s have a tax code that makes American companies more efficient, and allows them to better compete in an ever-globalizing economy.

As Washington grapples with the challenge of putting our economy back on track, we need to remind ourselves of who’s contributing now to the recovery (not to mention during boom times as well).

Sen. Baucus, who is being increasingly praised as a statesman, has an opportunity to ensure during his final term in Congress that the policy-making process does not unduly burden one of our nation’s most economically vital industries. Let us hope – for the sake of his legacy as well as the sake of Montanans and Americans – that he seizes this opportunity.

Pete Sepp is executive vice president of the National Taxpayers Union.