President Obama conjured up his favorite boogeyman recently: the oil and gas industry. He reached for it when he released his job creation and deficit reduction package.
Despite the fact that the oil and gas industry pays over $86 million a day in income taxes, royalties, bonuses and rents to the federal government, the president claimed that U.S. energy producers have not paid “their fair share.”
The president is proposing an additional $41 billion in new taxes on energy producers. This will result in higher energy prices, more oil imports, and in the end, few jobs in America. No wonder why the economy continues to be mired in an economic funk.
President Obama is trying to exploit the misperception that the energy industry earns undo profits, when in fact it earned a net income of just 6 cents on the dollar. That compares unfavorably to the 8.6 cents for all U.S. manufacturing, according to third quarter 2010 data from API.
But the president expects his class warfare argument to resonate beyond his core base of voters, he may be disappointed. Energy production reinvestments by oil and gas companies provided the United States with a $470 billion stimulus in spending, wages, and dividends in 2010, making it one of the few bright spots in the current economy. And it’s ordinary middle-class American investors – millions of them, in fact – who own most oil company stock through mutual funds, pension funds, and retirement accounts.
Ironically, the fine print of the President’s proposal is riddled with job-killing shenanigans through the tax code. A study by Louisiana State University finance professor Joseph Mason concludes that just part of the president’s plan would result in 155,000 job losses at the cost of $68 billion in lost wages. Obama’s proposal is bad news to long-suffering American families at a time when the national unemployment remains fixed above 9 percent.
Another irony is that the president’s proposal would actually exacerbate the budget deficit. By increasing federal tax increase by $5 billion per year on the oil and gas industry, this would lead to lower domestic energy production as companies would produce less in the U.S. because of higher cost and instead import more oil. Instead of leading to higher government revenue, this scheme would result in a $128 billion loss for in government revenues, according to a study by energy research and consulting firm Wood Mackenzie.
In his jobs plan, Obama calls for dramatic new government spending to create mythical “green energy” energy jobs. Similar administration efforts have failed to produce a net increase in jobs, but have been wildly successful in wasting tax dollars on companies like Solyndra when America can least afford it.
By contrast, American oil and gas companies continue to provide jobs here at home despite the administration’s unrelenting efforts to raise energy production costs through new restrictions, regulations and attempts to impose discriminatory taxes. The industry’s resilience suggests that Obama is squandering an opportunity to lead the nation to economic revival.
Far bolder than a class warfare appeal to his narrow political base, Obama could unshackle a proven engine of American prosperity.
Obama’s plans to hike taxes on energy producers represent a cause of, rather than a solution to, our nation’s economic woes. Americans who fill their gas tanks intuitively understand that increasing the cost of energy is bad for the economy, and that’s why they will see through crass reelection politics.
Thomas J. Pyle is president of the AEA.
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