Taxpayer Subsidies

• NTU to Congress: Ethanol Policy “RIPE” for Change (Letter, energy policy)
  05/19/08
• Close “Splash and Dash” Loophole, Nation’s Largest Taxpayer Group Says (Letter, energy policy)
  05/19/08
• Dethroning ‘Big Oil’ to crown ‘Big Corn’ (Op-ed, energy policy)
  03/14/07
• Ethanol Tariff Suspension Letter (Letter, energy policy)
  05/09/06

Prices, Profits, & Ownership

An energy tax increase, such as the one that Congress wisely rejected in early 2008, is not just an “industry problem.” Consumers will be the ultimate bearers of this burden, as taxes on commodities are inevitably found in the form of higher prices down the line. That means higher prices at the pump, for products that are shipped across the country to retail outlets, and on utility bills. Artificially increasing the cost of doing business not only doesn’t lower energy prices, it works directly to increase them.

America Is Invested in Energy

Source: SONECON, The Distribution of Ownership of U.S. Oil and Natural Gas Companies, September 2007

Also bearing the burden of new energy taxes would be shareholders and pensioners who are invested in energy company stocks. Because they are viewed as a solid investment with a high rate of return, many mutual funds, 401(k) plans and public employee pension funds are heavily invested in energy stocks. Policies that target “Big Oil” for economic pain will inevitably drag down stock prices, negatively impacting everyday investors who own shares in these companies.

Congress is targeting American industry by singling out domestic energy companies to shoulder a heavier tax burden. Boosting taxes on U.S. companies will ensure:

* Less investment in exploration;

* Less money to spend on researching new technologies; and

* Money drained by taxes cannot be put into refining improvements that will help to meet more of our present and future energy needs with domestic supplies.

It is said that those who cannot remember the past are condemned to repeat it. Punitive energy taxes are nothing more than a failed policy of the past. The Carter-era “Windfall Profit Tax” on oil resulted in reduced domestic oil production and increased imports. In addition, the tax failed miserably in raising revenue, bringing in only 20 percent of initial estimates. Rather than repeating policy mistakes, Congress ought to focus on solving the energy problems of the future with a sound, fair energy policy.

Related Links:

Taxpayer Group Applauds Bush Plan to Expand Domestic Energy Production, Lower Costs for American Consumers

Fuel Taxes

The biggest driver of recent gasoline price increases in the U.S. is supply lagging behind strong demand. Unfortunately, this is an equation that’s unlikely to yield significantly lower prices any time soon, with the growing economies of China and India requiring more and more petroleum products.

In the U.S., crude oil costs make up the largest portion of the retail price of a gallon of gas, with refining, taxes, and retail expenses rounding things out. Despite bombastic rhetoric about companies “gouging” consumers, federal and state governments actually “profit” more from each gallon of gas than the major oil companies do. It’s also important to remember all tens of billions of dollars in income, payroll, and other taxes that oil producers, gasoline refiners, retailers, and workers in these companies pay.

Our Gasoline: Where the Costs Go

Source: Average of gasoline components from January through September 2007 as reported by the Energy Information Administration. Average earnings from January through September calculated from Oil Daily.

Prices are not “set” by some group of CEOs in a corporate boardroom. Oil and natural gas are commodities traded in a global market, just like agricultural products and minerals. And, just like cattle or gold, oil and natural gas are subject to the price fluctuations that occur in free markets. Indeed, price-rigging is almost always the result of government meddling (such as OPEC), not conspiring companies.

Average Gas Tax, by Region

Source: American Petroleum Institute, January 2008 Report.

Prices for fossil fuels can also be influenced by perceptions about future supply and demand. Geopolitical tensions have been rising in major energy-producing countries such as Iran, Iraq, Venezuela, Chad and Nigeria. Similarly, concerns over naturally occurring phenomena such as hurricanes in oil producing areas can cause uncertainty among buyers and sellers. All of these realities are largely out of Americans’ control. Sure, we can plan for natural disasters, work to stabilize other nations, and even stockpile some resources, but growing economies and other factors will be with us for the foreseeable future.

Energy Business Taxes

Congress has proposed several ways to hurt our energy industry with new taxes. Ideas have included:

* Raising taxes on oil and natural gas produced on American soil and in the Gulf of Mexico.

* Repealing a manufacturing deduction currently granted to energy producers for the extraction and refining of oil. Since manufacturers in other industries will continue to qualify for this deduction, this is clearly an effort by Congress to punish domestic energy companies for political reasons at the expense of our pocketbooks.

* Imposing a “Windfall Profit Tax,” which, in its latest form, would apply to individual companies that don’t conform to Congress’s decree to pursue “renewable energy” sources.

Another ill-considered scheme is the elimination of a credit U.S. energy companies receive for the taxes they pay in foreign countries, with “upstream” and “downstream” activities accounted for separately. Congress has proposed combining these credits into one foreign oil “basket,” a program with a lower overall credit limit, in effect requiring double taxation on U.S. companies’ overseas productions. This policy will diminish incentives for overseas production by investor-owned, American energy companies and, ironically, give a competitive edge to foreign firms.

Political Games Over Energy Security

Despite what Washington politicians shout from atop their soap boxes, taxes on energy production undermine energy security. Policies that act as a disincentive for oil and natural gas production will ultimately hurt businesses and consumers by driving supply down and prices up.

Many congressional supporters of energy taxes believe “energy independence” should be the ultimate goal for our country. Despite its feel-good nature, this is neither a realistic nor desirable outcome. We are not completely “food independent” or “clothing independent,” nor should we seek to be. Trade with other nations has benefited our economy in many ways, including lower prices for consumers, less taxpayer outlays for foreign assistance, and more jobs for export-intensive U.S. industries.

Instead of mindlessly focusing on the politics of energy, Congress ought to establish a policy that treats all sources equally and allows the market to determine winners and losers.

Rather than playing political games with credits and deductions in the tax code, Congress should establish a fair and more transparent tax system that treats all energy companies, traditional or alternative, in the same manner.

America’s combined average federal/state corporation tax rate is among the worst in the industrialized world, while a recent NTU study pegged the business sector’s compliance cost for this monstrous system at more than $170 billion annually.

Simpler, less burdensome taxes for everyone – workers, investors, small business owners, managers, and retirees alike – are imperative for America’s future.

Cap-and-Trade Tax Hikes

Realistic Costs of Carbon Capture
(Energy Technology Innovation Policy Belfer Center for Science and International Affairs, Harvard University)
July 2009

The Cost of Climate Regulation for American Households
(The Marshall Institute)
March 2, 2009

Lieberman-Warner (Membership alert, cap-and-trade)
05/30/08

Lieberman-Warner (Letter, cap-and-trade)
05/30/08

Lieberman-Warner Vote Alert (Vote Alert, cap-and-trade)
06/05/08

Researching the Issue