The BP oil spill in the Gulf sent shockwaves across America. Now, a recently-imposed moratorium on U.S. deepwater drilling has doubled the shockwaves through America’s energy industry. Jobs have been cut, rigs have been tasked to new international assignments and economic activity in Gulf communities has diminished. But currently lurking in the chambers of Congress hides a new threat to America’s economic and energy security -- one that will be even more damaging and longer lasting: new energy taxes.
Pending legislation in Congress and President Obama’s budget proposal for next year both aim to levy up to $35 billion in additional tax obligations on our domestic energy producers. The most troubling of these new tax plans is a proposal to rewrite a portion of the tax code that addresses those who are called ‘dual capacity’ taxpayers.
In layman’s terms, this tax provision allows American oil and natural gas companies to take credits against U.S. taxes on the income they generate abroad. Many of America’s oil and natural gas producers maintain exploration and production ventures in foreign countries. And they pay significant income taxes on these activities to their host governments. To prevent these energy firms from having to endure double taxation on this foreign income, this tax provision was put into law more than 25 years ago.
But Congress wants to do away with this provision -- for U.S. energy companies only. If policymakers are successful in eliminating this important tax offset, the damage to both our domestic energy producers -- and, more importantly, America’s energy security -- will be felt for years to come. Today, the U.S. energy industry employs more than nine million American workers; and these are secure, well-paying jobs that provide good benefits. The industry, moreover, contributes approximately 7.5 percent to America’s total gross domestic product (GDP). If this mis-guided tax increase is enacted, these companies will be forced to lay-off workers, and they will be less able to invest in new, capital-intensive projects needed to stimulate our economy and meet our energy demands affordably and reliably.
The most worrisome implication of this vindictive rewriting of the ‘dual capacity’ taxpayer rules, however, is the imminent threat to U.S. energy and national security should this repeal succeed. By altering this tax provision, our government will be giving a huge advantage to foreign oil and natural gas companies. Instead of working to advance the welfare of American consumers and businesses, it will be subsidizing the likes of BP, Venezuela’s CITGO and Chinese state-owned energy companies such as CNOOC and PetroChina. And as many recent media reports have illustrated, China is happy to capitalize on every opportunity that advances its quest to secure energy resources around the world.
Implementation of this new tax would also reduce American energy companies’ ability to compete in the increasingly-competitive global marketplace for natural resources -- energy that is vital to our economic recovery and our standard of living. For example, many U.S. oil and natural gas firms operate in Nigeria, America’s fourth-largest oil supplier; the U.S. National Intelligence Council estimates that Nigeria and its West African neighbors will meet 25 percent of total U.S. oil demand within the next five years. But if Congress doubles the taxes on American oil and natural gas firms in places like Nigeria, U.S. companies will be unable to compete economically with foreign companies there. We will then risk losing access to these key energy reserves.
And while many Americans may think that our largest energy companies are major players in the global marketplace, in reality, America’s three largest oil companies rank just 17th, 21st and 23rd in size -- far down the list from all the government-run oil companies in Africa, Asia and the Middle East. Our government should recognize the competition and work to help U.S. businesses and all Americans prosper, rather than burden them with added financial liabilities that undercut our international competitiveness.
Congress should say ‘no’ to this proposed double tax. If it passes, the future of America’s economic and energy security will hang in the balance.