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The 'fiscal cliff' doesn't justify raising energy taxes

By PETE SEPP, UPI Outside View Commentator   |   Dec. 20, 2012 at 12:06 AM   |   Comments

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ALEXANDRIA, Va., Dec. 20 (UPI) -- If you've followed the news, you've likely heard about the "fiscal cliff," the tax increases and slowdowns in government spending that will automatically occur in 2013 if the lame duck Congress is unable to strike a deal.

Some parts of this cliff are steeper than others. At $109 billion, the spending restraint that will kick in is a lot more manageable (actually beneficial) compared to the expiring tax relief and planned tax hikes, which exceed $500 billion.

Still, as uncertainly swirls around Washington, families, businesses and the global economic markets have all taken notice of the challenges before the country.

As policymakers discuss their options, selectively raising taxes on the U.S. oil and gas industry is an idea that continues to be batted around. Just this week, in fact, a group of 71 House Democrats sent a letter to U.S. President Barack Obama and House Speaker

John Boehner, R-Ohio, insisting that increased taxes on oil and gas companies be part of any deal to avert going over the fiscal cliff.

The logic behind such a proposal is as tired as it is unwise.

For those who understand the dangerous economic ramifications of new energy taxes, feel free to stop reading. For those persuaded by the argument that oil and gas companies should "pay a little more," please, please keep reading.

So how do some in Washington specifically intend to raise energy taxes? Two prominent policy proposals are under consideration -- with others waiting in the wings.

First, the Obama administration and some members of Congress want to modify current law that provides tax credits to U.S. businesses earning income in foreign countries. Currently, businesses can use taxes already paid abroad to offset further domestic taxation on that same income. In essence, removing this protection would amount to a double tax.

So what's the problem? This new policy would greatly affect U.S. energy companies that have operations outside the country, putting our firms at a disadvantage internationally. Therefore, not only would American industry be forced to pay higher taxes but foreign oil companies -- many of them government-controlled like Venezuela's CITGO and China's CNOOC -- would have a stronger foothold in the worldwide energy market. Make no mistake: global commerce and competition is a great boon for the United States, but why would Washington hobble U.S. companies in this contest?

The second proposal Congress has considered would repeal the Section 199 manufacturing tax deduction only for oil and gas producers, a move that would immediately increase the industry's effective tax rate.

Some are quick to label Section 199 a "subsidy," or claim that energy companies have been getting favorable treatment all these years. Not true (in fact they already get a less generous write-off). As the Congressional Research Service has noted, about one-third of all corporate activity in the United States qualifies for this deduction. Almost any U.S. corporation that manufactures, grows, refines or generally produces goods used by consumers, could avail itself of this provision.

The shortcomings of a tax policy that would immediately push up the tax rate for just one industry are, in a word, obvious. The United States is pulling out of the most severe economic situation since the Great Depression. About 22 million Americans are unemployed or underemployed, while nearly 50 million are living in poverty. Gas prices -- around $4 a gallon in many states -- remain disappointingly high.

Traditional energy is responsible for adding $1 trillion to our economy and supporting millions of existing U.S. jobs (not to mention creating 9 percent of all new jobs in 2011, according to the World Economic Forum). By contrast, many renewable energy companies that do actually receive substantial direct taxpayer subsidies are underperforming or filing for bankruptcy.

Despite this, some in Washington remain committed to raising oil and gas taxes that would surely wreak havoc on the tenuous U.S. economy, all while turning a blind eye to those enterprises that truly do depend on handouts.

Congress should have a thoughtful discussion about real tax reform in the upcoming year but ramming through punitive energy taxes at the 11th hour will only send energy prices higher, slow investment, diminish desperately needed employment opportunities, and undermine U.S. recovery.

Hopefully these grim prospects will compel Congress to take a principled stand and pull targeted, punitive energy taxes off the negotiating table to make room for a more thorough exploration about the future of tax policy -- not just for oil and gas, but for all sectors.

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(Pete Sepp is executive vice president for the 362,000-member National Taxpayers Union (ntu.org), a non-partisan citizen group founded in 1969 to work for lower taxes and limited government at all levels.)

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(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

© 2012 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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