- - Thursday, November 29, 2012


As we approach the “fiscal cliff” and Washington’s finest scramble to avert economic disaster, many ideas and proposals are being considered: Let the George W. Bush tax cuts expire, close loopholes or increase revenue. The jargon is familiar if not numbing.

What will happen is anyone’s guess, but Democratic leaders on both sides of the Hill already have made increasing taxes on the oil and gas industry part of their opening salvo. For many on the left, the oil industry represents an easy target. With profits so high, they say, it’s only fair for the industry to pay more in taxes.

Why would it be fair? That is the real question. Would it be fair because oil and gas companies make too much money? Would it be fair because they pay too few taxes? Has the industry failed to pull its own weight? That’s hardly the case. Reality suggests that calls to tax oil and gas are rooted in politics or a desire to punish one source of energy for not being politically favored (in other words, “clean”) — and little else.

Americans should take a closer look at the logic deployed in support of these new taxes. According to the president and others in his party, new taxes on oil companies are fair because the companies can afford them — their profits are high enough to withstand new taxes.

This makes little sense. Companies such as Apple, Starbucks, General Electric and countless others have profit margins every bit as high — or even higher — but remain favored by the president and his allies. They seemingly are immune to higher taxes or even increased scrutiny. The president and his allies also have sought to justify new energy taxes by painting the industry as a tax-free rider, the recipient of direct handouts from federal coffers. They have cast this as a game of semantics, referring to the standard business deductions used by the industry as “subsidies” — very different objects in the U.S. tax code. Let’s be absolutely clear: The oil industry does not receive favored tax treatment.

Though this is a convenient oratory modification, in reality, the “subsidies” the president balks at are often the same tax provisions used by all American manufacturers in hopes of helping our economy. The Section 199 manufacturing deduction, for instance, was put in place as a means of keeping jobs in the United States. Protections against double taxation on foreign income, known as dual-capacity provisions, are in place to allow firms — such as oil companies — to be competitive in a cutthroat global marketplace.

Despite the consequences of raising energy taxes — chief among them rising gasoline prices and decreased U.S. access to oil — the president continues to target “Big Oil,” even though it pays some of the highest taxes of any U.S. industry.

In 2011, the oil and gas industry paid an average tax rate of more than 40 percent. The average Standard & Poor’s company paid about 25 percent, and some paid in the single digits. In fact, every day, oil and gas companies pay $86 million in taxes.

Mr. Obama is right when he suggests the corporate tax rate should be reduced. Lowering the rate would simplify what has become one of the most complex tax systems in the world, and it automatically would close a number of tax loopholes that are in the current code. The exercise of reform, in other words, is eminently worthwhile — provided the process is executed in a manner that seeks to simplify our code while simultaneously making our economy more appealing for job creators.

We often hear that our economy is at a breaking point. Clearly, things are difficult, and new measures to correct financial mistakes and jump-start our system are needed. We need to be fair in practice, not just in theory or in talking points. We need to be reasonable. We need to incentivize the industries and segments of our economy that contribute significantly to its success — not use them as ATMs or scapegoats.

The president and our leaders in Washington owe it to us to present a reasonable, balanced approach to our financial woes. Anything less would be unproductive.

William O’Keefe is the CEO of the George C. Marshall Institute.

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