- - Thursday, January 16, 2014

ANALYSIS/OPINION:

Practically no one in this town is so naive as to think that tax policy can be separated from politics.

Whether elected officials decide to completely overhaul the tax system or simply make a few adjustments, it’s not unreasonable to hope that the New Year might see more sensible approaches that will avoid making matters worse. One way to start would be for the Obama administration and its allies in Congress to call off their repetitive tax attacks on job-creating industries, prominent among them oil and gas. This strategy represents bad fiscal policy and even worse politics.

America’s booming oil and natural-gas production has been a bright spot in the U.S. economy even in the darkest months of the Great Recession and right through the long, slow recovery. Launching a tax-backed onslaught against this success would amount to a classic case of snatching defeat from the jaws of victory. And among the vanquished would be the middle-class families that both parties claim to be so concerned about in this election year.

Our domestic oil and gas companies have consistently produced what President Obama and economists of all philosophical stripes insist that the economy needs most: new jobs and private investment. Tapping into the vast reserves of oil and natural gas embedded in America’s huge underground shale deposits has restored the United States to a level of energy prosperity not seen in decades — one that helps to bolster every aspect of our economy. This stunning development also puts our nation on the cusp of asserting itself as an energy exporter. Ironically, some of the biggest beneficiaries of this activity have been governments themselves, whose coffers have swelled with revenues from profit, payroll, investment and extraction taxes.

Domestic exploration by U.S. companies has expanded this country’s oil and natural-gas reserves by 35 percent since 2007, when the economy officially tipped into recession, beginning in December. From that fateful year to the present, U.S. oil and gas producers have seen a 40 percent increase in job growth, compared to a single, solitary 1 percent for the overall economy. The bulk of those energy-industry jobs are solid career opportunities that allow employees to support their families.

This expansion has been funded through capital investment here in the United States that totaled $56 billion in 2012 alone — enough to make the sector one of the Progressive Policy Institute’s “Investment Heroes.” Energy accounted for a little more than one-third of the total private capital investment in America by the top nonfinancial companies the institute analyzed. These commitments were flowing so abundantly, only the telecommunications-cable TV industrial cluster could achieve a similar feat.

As 2013 came to a close, the apparent willingness of other industries to start investing was one of the most promising signs that the recovery might be accelerating. Capital investments in general were approaching prerecession levels. Let’s remember, though, that such expenditures by the oil and gas industry never experienced a recessionary tumble in the first place.

Given this progress, why would the White House and its friends on Capitol Hill want to fight a dangerous, counterproductive delaying action?

From a policy standpoint, perhaps one reason is that they prefer to selectively gouge tax revenues from a successful industry, rather than earnestly face up to the difficult job of comprehensive tax reform that attempts to treat all businesses the same. Politically speaking, they appear to be following the badly worn playbook of demonizing oil and gas producers as fat cats who don’t pay their fair share of taxes.

As a recent New York Times analysis concluded, U.S. oil and gas companies pay an average total tax rate of 37 percent, compared with 29 percent for all S&P-listed companies. In fact, three of the nation’s 10 largest taxpayers are energy companies. Furthermore, according to a study by Sonecon, only 3 percent of oil-company stocks are owned by corporate management, while nearly half sits in pension funds and retirement plans covering tens of millions of Americans. (Mutual funds and other investors, including individuals, account for the rest).

The time has come to end the constant tax-skirmishing designed to punish politically convenient industries, such as America’s oil and gas producers — especially now that a more robust economic recovery is tantalizingly close. These industries should be viewed as resources, not targets of opportunity.

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

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