Montanans should be concerned about economic fallout from less energy production if Congress clamps additional taxes on the oil and gas industry.
The Senate Finance Committee is considering an administration-backed bill that would increase federal taxes on oil and gas companies by $46 billion over the next decade. Its supporters are hoping that conservative Republicans might approve such a tax as part of a comprehensive reform of the tax code.
44% income tax rate
Raising petroleum taxes higher than they already are would be a blunder. The total dollar amount of profits in the oil and gas industry are large but the profit margin is comparable to other industries. The taxes it already pays are also large. The industry has a 44.6 percent income tax rate, which is higher than that of any other industry in the country. What’s more, oil and gas companies also pay royalties, bonus bids, and lease payments. Altogether, the oil and gas industry pays an average of $85 million per day to the U.S. Treasury.
Under the tax bill, just one of its provisions would cost oil and gas companies $17.4 billion. This is money currently being spent to help U.S. manufacturers maintain and create well-paying jobs. Since 2004, companies have been able to expense these costs as part of the “American Jobs Creation Act.” But this and other deductions like intangible drilling costs would be stripped away.
There’s no question that the U.S. oil and gas industry is being singled out. Certainly oil and gas production is booming, thanks in large measure to the growth in drilling in the prolific oil fields that underlie parts of Montana and North Dakota. The development of “tight oil” formations in this region and the Eagle Ford shale in south Texas has spurred an increase in U.S. oil output by more than 60 percent since 2008.
Surpassing Saudi Arabia
As difficult as it might seem to believe, given our country’s heavy dependence on OPEC oil as recently as 10 years ago, America has passed Saudi Arabia as the world’s biggest liquid fuels producer and is now producing more oil than it imports. And we have surpassed Russia as the world’s leading producer of natural gas.
These are extraordinary changes that have buoyed our economy, reduced the nation’s trade deficit and strengthened our geopolitical position in the world. The surge in U.S. oil and gas production has produced a renaissance in U.S. manufacturing. And it has pumped millions of dollars in tax revenue into state and local governments and created hundreds of thousands of jobs. An analysis of new employment trends predicts that by 2020 as many as 3.3 million new jobs will be supported by unconventional oil and natural gas development, reducing the U.S. unemployment rate from 7.3 percent to below 6 percent.
Members of Congress need to think about that as they consider whether or not a sizable tax increase like the one contemplated might boomerang. Unconventional energy development has been a major bright spot for the U.S. economy, especially Montana and North Dakota. And its importance is only expected to grow in the years ahead – unless it’s stifled by an increase in the industry’s taxes.