Only days after voters cast their ballots, members of the 112th Congress have returned to Washington for the most consequential lame-duck session in many years. At issue is the “fiscal cliff.” This precarious position is caused by a combination of expiring tax cuts — which will present new burdens on working families and small businesses — as well as tax increases, which will do further damage to an already weakened economy. Throw into the mix politicians’ attempts to cancel a scheduled slowdown in federal spending known as the “sequester,” and the outlook for taxpayers seems grim.
A nation fed up with this election year will find little relief from the partisan wrangling after Nov. 6. Already leaders from both sides are accusing each other of not negotiating in good faith. Most Republicans are backing a strategy that emphasizes limiting the size of government while preventing more bills for Americans stuck with a bogus stimulus package and worried about future costs of Obamacare. Disturbingly, there’s less GOP unity over restraining federal expenditures across the board, particularly when it comes to defense.
Most Democrats are advocating what they call a “balanced approach,” which is a poll-tested way of saying they think the fragile economy somehow can withstand higher taxes — especially if they’re confined to wealthier Americans. Yet a study by Ernst and Young economists Robert Carroll and Gerald Prante found that allowing just the top two income tax rates to rise, along with Obamacare tax increases and other White House proposals impacting upper-income earners, could over the long term reduce U.S. employment by 0.5 percent and drive down real after-tax wages by 1.8 percent.
Another proposal being discussed among some members of both parties is a punitive tax on energy companies. Though campaign-trail demagogues have labeled it repealing “taxpayer subsidies for Big Oil,” they’re actually pushing a much more cynical ploy.
Even The Washington Post has noted, “The government has allowed only tax deductions to help oil companies recover the cost of doing business — this is standard in virtually all industries. No money from the U.S. Treasury goes to the oil industry, so it’s a stretch to describe the tax breaks as literal handouts like Solyndra received.” We know how the tale of bankrupt, government-subsidized Solyndra, that shining example of the administration’s green-energy policy, turned out.
Furthermore, according to an official estimate for the Repeal Big Oil Tax Subsidies Act, whose provisions President Obama’s allies in Congress have backed, more than 90 percent of the revenues the bill raises come from stripping oil and gas companies of two tax provisions available to businesses across our economy. One is a deduction for domestic job creation; the other is a write-off for taxes paid to foreign governments on overseas operations.
Meanwhile, here at home, families in states like Ohio, Pennsylvania and Texas have benefited from the ongoing energy jobs boom thanks to technologies such as hydraulic fracturing. Congress could undermine this progress, however. A study for the American Energy Alliance by Louisiana State University’s Joseph Mason found that selectively ending the two tax provisions for major oil and gas firms would eventually cost 155,000 jobs and, ironically, cost billions in revenues to governments.
Instead of setting up one industry to take the fall for fiscal mismanagement by both parties, it would be better to explore all deductions, credits and exemptions in the context of a tax reform plan that simplifies the base and lowers the rates. A good place to start might be legislation from Rep. Mike Pompeo, Kansas Republican. H.R. 3308 would eliminate several narrow energy tax breaks but requires all resulting revenues to be put into rate reduction.
Congress certainly faces tough choices in the lame-duck session. By forcing the energy industry to play by a different set of rules than other U.S. manufacturers, however, lawmakers will seal a deal that means fewer job prospects and higher prices at the pump. Plus, they’ll have squandered another opportunity to enact tax reforms that could boost our entire economy.
Pete Sepp is executive vice president of the National Taxpayers Union, a nonpartisan citizen group working for lower taxes and limited government.