Study: Energy Tax Hikes Could Cripple U.S. Economy

Tax hikes on the oil and gas industry being pursued by the Obama administration will have a crippling effect on the U.S. economy, says a new report by professor Joseph Mason of Louisiana State University.

In the study published earlier this week, the economics professor found that President Obama’s proposal in the 2011 budget to repeal tax credits for oil and gas companies will trigger “extensive economic losses” over the next 10 years.

If enacted, the plan could reduce economic output by nearly $341 billion, slash more than 154,000 jobs in 2011 and cut wages by $68 billion. Each year the Obama tax policies are in place, the study says, they would also hemorrhage an additional 115,000 jobs, many of them in the unrelated fields of healthcare and manufacturing.

Obama’s budget proposal calls for rollbacks on two types of tax credits, one under Section 199 of the U.S. tax code, which grants companies the ability to write off 6 percent of their revenue from oil and gas production from their tax liability. This proposal was struck down in a 56-42 cloture vote in the Senate Tuesday.

The second tax credit in Obama’s crosshairs is known as the “dual capacity tax credit,” adopted 25 years ago, which prevents U.S. companies with foreign offices from paying taxes twice. Obama’s proposal would single out oil and gas firms, rolling back a policy that allows the firms a tax credit for the portion of a foreign levy. Mason found this proposal would put U.S. energy companies, many of whom already compete against foreign government-owned firms, “at a significant disadvantage against foreign competitors.”

Sources tell Capitol Confidential that this rollback could come for a vote sooner than previously expected because senior Democrats are considering incorporating it into the infrastructure-focused stimulus package they plan to pursue as a new economic “fix.” The effort to repeal Section 199 relief appears to be on hold for now, although that could change, as top Democrats have shown significant interest in pursuing it to-date.

As the Mason study makes clear, the repeal or curtailment of either tax credit would have the reverse effect on the economy to that which the Obama administration ostensibly is seeking, much like the six-month moratorium on drilling in the Gulf previously imposed. There, as with regard to the energy tax hikes, critics charge that the executive branch has been seeking to capitalize on the BP oil spill to impose policies preferred by environmentalist groups and progressive allies, and back-burnering job maintenance and creation as top priorities. But the consequences of the tax increases could be particularly devastating, according to Mason.

“That region, already recovering from numerous recent disasters, could lose another $126 billion in economic output, more than $24 billion in wages, 56,709 jobs, and about $600 million in state and local tax revenues over the ten year period analyzed,” Mason wrote.

In addition, the negative consequences of pursuing these tax hikes could be felt beyond the job market. The Obama administration has claimed it plans to use the revenue from the tax hikes to pay for various federal government programs, including a recently-proposed, large-scale transportation infrastructure program. However, Mason found that state and local governments will see their annual tax revenues fall by $1.8 billion annually under the Obama plan. This in turn, critics charge, could limit their ability to address transportation and infrastructure needs at the local level– making any benefit derived from the tax increases essentially a wash with regard to funding infrastructure improvements or transportation projects, specifically.

“Increasing tax burdens in current economic conditions would be unwise, and would likely put undue pressure on an already strained tax base,” Mason wrote. “Although a debate on the parameters and estimates put forth in my analysis is likely, the point remains that economic costs need to be considered when evaluating policies as potentially costly as these.”