CRS: Dem tax hikes on oil producers will raise prices, increase foreign dependency

posted at 12:55 pm on May 10, 2011 by Ed Morrissey

Democrats want to use the tax code to punish oil companies, but the Congressional Research Service reported two months ago that tax hikes on oil producers would backfire on consumers instead.  Instead of using the revenue to fund “green energy” initiatives, as Barack Obama wants, Democrats are hoping to use the revenue for deficit reduction as a way to pin Republicans against the wall:

It’s official: Democrats will deviate from Max Baucus’s blueprint for the bill that would have used the new tax to fund initiatives intended to reduce oil consumption. Instead, Democrats are proposing to put the approximately $4 billion annually toward balancing the budget and daring their Republican colleagues to vote against deficit reduction.

This has to be a joke, right?  Four billion dollars in additional revenue — a questionable claim, as we’ll see in a minute — will reduce this year’s deficit by exactly 0.25%.  It’s not even a full month’s interest on one year’s deficit.  While any deficit reduction helps, the real problem in deficits is spending, not revenue.

But as the CRS report shows, the tax changes proposed are difficult to project for revenues anyway.  Most of the tax breaks listed are simply ways to allow oil companies to declare costs as most other businesses do.  Many don’t even come into play until oil prices drop below a certain floor anyway.  For instance, the Enhanced Oil Recovery Credit hasn’t even been an issue for several years, since it only applies when oil prices are so low that they discourage more expensive production.    The same is true for costs associated with marginal wells.  Repealing the tax break for “intangible drilling costs” would only impact independent producers, not the larger oil companies, and so on.

Plus, the effect of repealing other methods of declaring costs will mean less exploration and production, not higher revenues.  Democrats appear to be using static tax analysis to reckon that their action would generate $4 billion in annual revenue.  What will happen is that oil companies will change their behavior to reduce their tax liabilities, and that will mean lower production and higher prices.

The CRS concluded in March that the consumers would end up getting the shaft for Democratic populism, and would leave us more dependent than ever on imports:

The Obama Administration, in the FY2012 budget proposal, seeks to eliminate certain tax expenditures that benefit the oil and natural gas industries. Supporters of these tax provisions see them as comparable to those affecting other industries and supporting the production of domestic oil and natural gas resources.  Opponents of the provisions see these tax provisions as subsidies for a profitable industry the government can ill afford, and impediments to the development ofclean energy alternatives.

The FY2012 budget proposal outlines a set of proposals, framed in terms of deficit reduction, or termination of tax preferences, that would potentially increase the taxes on the oil and natural gas industries, especially those of the independent producers. These proposals include repeal of the enhanced oil recovery and marginal well tax credits, repeal of the current expensing of intangible drilling costs, repeal of the deduction for tertiary injectants, repeal of the passive loss exception for working interests in oil and natural gas properties, elimination of the manufacturing tax deduction for oil and natural gas companies, increasing the amortization period for certain exploration expenses, and repeal of the percentage depletion allowance for independent oil and natural gas producers. In addition, a variety of increased inspection fees and other charges that generate more revenue for the Department of the Interior are included in the budget proposal.

The Administration estimates that the tax changes outlined in the budget proposal would provide $22.8 billion in revenues over the period 2012 to 2016, and over $43.6 billion from 2012 to 2021. These changes, if enacted by Congress, also would reduce the tax advantage enjoyed by independent oil and natural gas companies over the major oil companies. On what would likely be a small scale, the proposals also would make oil and natural gas more expensive for U.S. consumers and likely increase foreign dependence.

We should be looking for ways to encourage domestic production, or at least not to discourage it.


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How’s all that money we gave to Brazil working for us? How about all that blood for oil?

Hening on May 10, 2011 at 12:56 PM

There nothing DemocRATS don’t do that won’t cost the American tax payer more money. These people are dangerous and are starting to become the REAL drag on society.

jawkneemusic on May 10, 2011 at 12:58 PM

Gas prices are right where Barry and Steven Chu want them. What’s the problem?

GarandFan on May 10, 2011 at 12:59 PM

But taxing oil companies would be more fair and help put us the road to a green jobs utopia.

SlaveDog on May 10, 2011 at 1:00 PM

We should be looking for ways to encourage domestic production, or at least not to discourage it.

ain’t gonna happen while dear leader is in office….

cmsinaz on May 10, 2011 at 1:01 PM

Obama still working to destroy more jobs……Hopenchange rocks!!!!!!!

search4truth on May 10, 2011 at 1:01 PM

I tried to do some searches a few days ago, when this topic first hit the news, and I read some pieces where the tax breaks are being taken by some Ethanol producers also.

So all the tax breaks does not go to Big Oil, it also goes to other oil/gas producing companies.

WoosterOh on May 10, 2011 at 1:02 PM

And speaking of gas prices, where’s that precipitous drop in fuel prices that WaPo promised?

The only change I’ve noticed is that the maximum credit card purchase at the pumps around here has been increased from $75.00 to $85.00. But at $4.12 per gallon, I still can’t get a fill up.

SlaveDog on May 10, 2011 at 1:04 PM

Gas prices are right where Barry and Steven Chu want them. What’s the problem?

GarandFan on May 10, 2011 at 12:59 PM

The costs must be increased until the trucks stop running. Then the oceans will stop rising and the planet can begin to heal.

Kenosha Kid on May 10, 2011 at 1:04 PM

Good!keep on doing what you’re doing obama,enjoy it while you can.

ohiobabe on May 10, 2011 at 1:04 PM

It should be noted, the Democrat budgets for the past 4 years has given Big Oil the $16 billion. Yes, even the 2011 budget was Obama’s/Democrats, not Republicans.

So, now all of a sudden the Democrats need someone to beat up on.

WoosterOh on May 10, 2011 at 1:04 PM

Higher fuel prices sounds like higher food prices to me. Leave it to the Dems to stoke inflationary pressures to the breaking point.

As taxpayers are paying for high speed rail boondoggles for urban areas those of us in outlying areas are being punished to the max. Flyover He//. That Barf Boy really knows how to wage war, doesn’t he?!

Cody1991 on May 10, 2011 at 1:06 PM

But remember- Obama is in no way even the slightest bit responsible for the high gas prices.

/MSM

Hollowpoint on May 10, 2011 at 1:07 PM

So, now all of a sudden the Democrats need someone to beat up on.

WoosterOh on May 10, 2011 at 1:04 PM

until they need them again come election time

cmsinaz on May 10, 2011 at 1:07 PM

Hollowpoint on May 10, 2011 at 1:07 PM

+1

except for when W was in office…

cmsinaz on May 10, 2011 at 1:08 PM

Most of the tax breaks listed are simply ways to allow oil companies to declare costs as most other businesses do.

Sort of.

Title 26, Section 199(d)(9):

(9) Special rule for taxpayers with oil related qualified production activities income
(A) In general
If a taxpayer has oil related qualified production activities income for any taxable year beginning after 2009, the amount otherwise allowable as a deduction under subsection (a) shall be reduced by 3 percent of the least of—
(i) the oil related qualified production activities income of the taxpayer for the taxable year,
(ii) the qualified production activities income of the taxpayer for the taxable year, or
(iii) taxable income (determined without regard to this section).

They’re already having their deductions reduced compared to other businesses. The Dems want to exclude the deductions completely.

Abby Adams on May 10, 2011 at 1:08 PM

It’s kind of sickening how even those who generally are level headed and rational think only of how this affects themselves. A few of my friends are not happy about gas prices but they don’t think drilling is the solution as it would ‘disturb ecosystems” then I remind of the of older people on fixed incomes and the poor and they god “oooooooh yea….”.

High gas prices haven’t damaged my families situation but if it continues to rise, it will. I can only imagine how lower income people are suffering right now as a result of this administrations anti-natural resource policies.

jawkneemusic on May 10, 2011 at 1:09 PM

I’m sure this will all be explained to us via our presidential cell phone alerts.

Little Boomer on May 10, 2011 at 1:12 PM

Little Boomer on May 10, 2011 at 1:12 PM

heh

cmsinaz on May 10, 2011 at 1:13 PM

Democrats want to use the tax code to punish oil companies, but the Congressional Research Service reported two months ago that tax hikes on oil producers would backfire on consumers instead

And really…..other than liberals, is there anyone here who wouldn’t say “DUH” after reading that sentence?

search4truth on May 10, 2011 at 1:16 PM

I’m sure this will all be explained to us via our presidential cell phone alerts.

Little Boomer on May 10, 2011 at 1:12 PM

Along with notices to contribute to BO’s reelection campaign – accidental, of course.

Cody1991 on May 10, 2011 at 1:16 PM

Unexpectedly…

golfmann on May 10, 2011 at 1:19 PM

Cody1991 on May 10, 2011 at 1:16 PM

lol

but i can see it happening for sure sad to say

cmsinaz on May 10, 2011 at 1:22 PM

Larry Kudlow had an interesting segment on this subject the other evening, in which he pointed out that public U.S. integrated oil companies, like ExxonMobil, pay twice as high an effective income tax rate as large corporations generally (just over 40% versus about 20% for the S&P 500 as a whole); that ExxonMobil specifically pays more in income tax to the Feds than they return to shareholders in dividends; and, that sales taxes paid on top of income taxes make the industry a huge ATM for Democrats in DC.

Things are so good for the Democrats that even nationalizing the industry, a la Hugo Chavez, which would nominally allow the Democrats to take ALL of the industry’s profit, would make only a relatively small improvement in cash flow to the government.

So this is nothing more than your normal and standard demagoguery of efficient capitalist enterprises by the crazy lefties, and the real goal is not raising taxes on these companies. It’s raising taxes on all of us, with more sales taxes, “road usage fees”, “mileage based taxes” and other such crap.

MTF on May 10, 2011 at 1:29 PM

Economic illiteracy is to be expected from a group that routinely spends $1.60 for every $1.00 they take in.

Vashta.Nerada on May 10, 2011 at 1:32 PM

Thanks Democrats… Gas is almost $4.50 a gallon in SOCAL by my house…

Khun Joe on May 10, 2011 at 1:39 PM

I’m really looking forward to the post-primary presidential debates, when a certain governor/energy expert takes Obamao to task for all the lies his administration & the MFM is perpetuating about gas prices & domestic energy/oil production.

That’s gonna be a great popcorn event.

ornery_independent on May 10, 2011 at 1:42 PM

>Sarah Palin talks energy, jabs MSM with David Asman

Brian1972 on May 10, 2011 at 1:35 PM

Bingo…like I was sayin…

ornery_independent on May 10, 2011 at 1:45 PM

Motorists here in California are running out of gas on the road since they are trying to get further which each tank of gas.

http://www.bluecollarphilosophy.com/2011/05/california-motorists-left-stranded-over-obamas-energy-policy.html

Democrats do not care about the middle class.

Blue Collar Todd on May 10, 2011 at 1:48 PM

Sarah Palin said in one of her interviews that this tax policy only benefits the small producers and explorers and the big oil companies have been exempt from this tax benefit since the 70′s or 80′s. She said this proposal will do nothing other than lose jobs in the industry as the independent producers and explorers/drillers are taxed out of business. I expect her to be much more vocal about this if this proposal gets any more traction.

karenhasfreedom on May 10, 2011 at 2:00 PM

High gas prices haven’t damaged my families situation but if it continues to rise, it will. I can only imagine how lower income people are suffering right now as a result of this administrations anti-natural resource policies.

jawkneemusic on May 10, 2011 at 1:09 PM

I live in a township of very low population with a large number of the inhabitants well into their 70′s and 80′s and on low fixed-incomes. We have had an unusually extended winter and a very cold spring.

Heating oil is nudging $4 per gallon right now. There are people I know who are having to make the decision: heat their home, or buy food. They can’t do both.

I filled my fuel tank two weeks ago: $840! This month we are living on the emergency supplies built up over the last two years.

Gasoline is $4.30 per gallon today. Health care and affordable groceries are an 80 mile round-trip away for all of us.

The churches are all broke, and really can’t help. There are no businesses (with the exceptions of restaurants, bars and tourism) remaining open in the county any more. They all were closed permanently during the recession. Unemployment can’t even be measured accurately. It isn’t pretty here right now.

Yoop on May 10, 2011 at 2:07 PM

If they want to get rid of the “subsidy” then there should be a trade-off. How about ending frivolous environmental lawsuits? I think the oil companies would be in agreement with this. If the Democrats want to use the “fiscally responsible” tag, then they can’t complain about public radio being a necessity or Planned Parenthood.

djaymick on May 10, 2011 at 2:11 PM

CRS: Dem tax hikes on oil producers will raise prices, increase foreign dependency

Well, that’s the whole idea, isn’t it?

Dopenstrange on May 10, 2011 at 2:11 PM

CRS: Dem tax hikes on oil producers will raise prices, increase foreign dependency

Wow, it’s almost as if they want inflation and the eventual collapse of the economy.

Chip on May 10, 2011 at 2:24 PM

Higher fuel prices sounds like higher food prices to me.
Cody1991 on May 10, 2011 at 1:06 PM

And even though commodity prices are high for like corn & wheat, the product has to be trucked to the railhead.
My hubby trucks on the side for big farmers here in SW ND.
Smaller farmers are really having a hard time with this.
And when the prices are up & they want to sell product, good luck in getting a train on time.
One elevator ’round here had like 10 trains ordered within a certain time period.
The RR only gave them SIX.
The small farmer is going to under on this one, only consolidating farms into bigger & bigger enterprises.
Same with us ranchers.

Yoop on May 10, 2011 at 2:07 PM

I’m trying to get back my food storage.
I am canning a lot of meat now.
I also go out & pick wild stuff to can like chokecherries & stuff over the last several years.
I want a food grinder bcs we have access to corn & wheat.
Every little bit helps.
Also looking at getting chickens.
But I get eggs for $1/dozen from people here, so that isn’t a huge issue for me.
All in all, EVERYONE everywhere is pretty much having a hard time over this.
I know a lot of the older people are starting to take more advantage of the commodities programs.

Badger40 on May 10, 2011 at 2:38 PM

How about ending frivolous environmental lawsuits?
djaymick on May 10, 2011 at 2:11 PM

EAJA money is like honey to environmentalists.It’s why they file all those lawsuits-to make $$.
It sure as he!! isn’t bcs they love the environment.

Badger40 on May 10, 2011 at 2:40 PM

Why are oil companies still resident in the USA? Why don’t they base themselves in another country in order to best serve the objectives of their owners, the stockholders?

slickwillie2001 on May 10, 2011 at 2:48 PM

This is becoming unbearable . . . Democrats and their other leftist allies are without a doubt the dumbest air breathing organisms on the face of the planet.

rplat on May 10, 2011 at 2:50 PM

Why are oil companies still resident in the USA? Why don’t they base themselves in another country in order to best serve the objectives of their owners, the stockholders?

slickwillie2001 on May 10, 2011 at 2:48 PM

That’s what I was thinking. They should be domiciled elsewhere although I have no idea what it would entail in terms of cost.

Cody1991 on May 10, 2011 at 2:53 PM

Badger40 on May 10, 2011 at 2:38 PM

Things are pretty bad where I live – somewhat closer to Yoop’s comments.

DC always seems completely out of touch with the problems of our areas, however this administration seems to act intentionally against our interests and welfare. It’s as though millions of us do. not. exist.

Cody1991 on May 10, 2011 at 2:57 PM

Why are oil companies still resident in the USA? Why don’t they base themselves in another country in order to best serve the objectives of their owners, the stockholders?

slickwillie2001 on May 10, 2011 at 2:48 PM
That’s what I was thinking. They should be domiciled elsewhere although I have no idea what it would entail in terms of cost.

Cody1991 on May 10, 2011 at 2:53 PM

Tell that to the little guy who just wants to make a living in his own country.
Independent producers are basically, in any line of work, not just oil, are told to go eff themselves.
Notice AT&T wants to buy T-Mobile now.
Bcs of course this is how they can provide better service for us rural folks.
This kind of crap only leads to further consolidation of all industry etc. bcs the only entities that can survive are the ones in bed with politicians & the Feds.
These ba$tard$ won’t be happy until we’re all working for one big huge global company.

It’s as though millions of us do. not. exist.

Cody1991 on May 10, 2011 at 2:57 PM

Big city folks tend to think like this.
It’s if those of us in the country, who make their food & raw materials for everything they have are somehow nonexistent.

Badger40 on May 10, 2011 at 3:14 PM

These ba$tard$ won’t be happy until we’re all working for one big huge global company.
Badger40 on May 10, 2011 at 3:14 PM

Sounds eerily like the “Left Behind” series, based on Revelation. This world is getting more frightening by the minute. Can we hang on until 2012? For some of us, I’m afraid the answer is no.
Geez, writing that gave me a knot in my stomach. I am truly afraid for my country and what she has become. I’m starting to think about shopping for a pitchfork. Seriously.

odat on May 10, 2011 at 4:06 PM

Liberals really don’t understand economics or business. Thus they continually do things that harm the voters and can’t understand why those things don’t work. They need to appear in favor of helping the economy and lowering gas prices before the 2012 election. This will accomplish the opposite, and then they will sound the old familiar mantra: “Look at our intentions, not the results!”

hachiban on May 10, 2011 at 4:38 PM