The Obama administration wants to pass two tax changes targeted at American oil and energy companies in order to pay for other tax breaks they want to offer as part of their new we-can’t-call-it-a-stimulus stimulus package. Unfortunately, as Joseph Mason points out in a New York Post essay, the effect of those tax changes will be to kill 150,000 jobs in that sector — high-paying, skilled union jobs for the most part. Who says? Obama’s own Commerce Department:
Just last week, President Obama explicitly targeted the industry for two massive tax hikes. First, he’d ban oil and gas companies from using the “Section 199” tax credit, a measure for domestic manufacturers enacted in 2004 to boost US employment. (The Senate is set to vote this week on its version of the ban.) Second, he wants to end “dual capacity” protection for US energy firms.
Without this shield against double taxation on foreign revenues, American companies would be competing on an uneven global playing field. Again, Obama aims directly and specifically at the US oil and gas industry.
Yet, by the federal government’s own economic model, these tax hikes would lead to huge, immediate job losses. I ran the numbers through the Commerce Department’s RIMS II model; it shows, under the proposed changes to Section 199 and dual capacity, Americans would almost immediately lose more than 150,000 stable, private-sector jobs.
Because our energy firms operate as part of an integrated economy, as much as 38 percent of the job losses would come in professional fields, such as education, administration, health care, real estate and the arts. Another 21 percent would hit producers of necessities such as our food and textiles.
Ironically, the White House and Obama have started selling this as a means to keep job creation inside the US. Actually, that was the point of the tax breaks Obama wants to modify, at least in part. The shield against double taxation allows American companies to remain competitive against foreign-based companies, thanks to the lack of taxation they pay and the high corporate rate in the US. If American companies had to pay taxes twice on foreign earnings, they would either have to hike prices so high that they would lose business, or move the companies overseas to avoid the taxes. Either way, it would cost jobs in the US, and plenty of them.
In fact, that was the reason that the Obama administration finally got talked out of making these two changes last year, applied to all American businesses. The changes would have seriously damaged foreign sales by manufacturers such as Caterpillar and Intel, which sent their CEOs in person to argue against the effort. Foreign sales create jobs at home, even if some of the actual manufacturing occurs abroad. Changing the tax code would not only have resulted in much less revenue than projected thanks to falling sales and some relocations of companies, but also lower overall revenues thanks to higher unemployment.
In an economy like this, we should be looking to create new jobs, not destroy existing positions. This is a childish attempt to punish the energy sector not for any particular failing but simply out of antagonism on one hand and a redistributive impulse on the other. If Obama wants to pay for his new tax breaks, which are estimated to cost around $120 billion, then perhaps he can cut part of the $1.1 trillion in new annual spending from Democrats over the last three years. He’d do better at economic stimulus if he cut all of it than by destroying another 150,000 skilled jobs.
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