Higher gas prices, fewer jobs and a competitive advantage for foreign energy firms. Congress needs to consider these consequences before signing off on President Barack Obama’s proposal to remove the domestic oil and gas industry’s exemption from taxation of income earned overseas.
Under Section 199 of the Internal Revenue Code, U.S. firms are allowed to write off the cost of taxes they pay on overseas earnings as a foreign tax credit. Under Obama’s proposal, that exemption and many others would be removed only from domestic energy companies, including giants like ExxonMobil and the legions of wildcatters, oil-field equipment suppliers and other smaller firms in the industry.
By eliminating the foreign tax credit for U.S.-based oil and gas companies, the federal government would be taxing them twice on income for which they also pay foreign levies. Foreign-owned competitors could gain a significant competitive advantage. Senate Finance Committee chairman Max Baucus, D-Mont. wants to use the proceeds from double-taxing American energy companies to create a $30 billion fund to jump-start lending to small businesses. But isn’t that what TARP and the Obama economic stimulus program were supposed to do?
The Obama-Baucus approach would hit especially hard the three U.S. oil companies that have the most foreign earnings — ExxonMobil, Chevron, and ConocoPhillips. Like it or not, these companies produce products that are absolutely essential to the daily operation of the American economy.
To encourage increased domestic production, job creation and tax revenue, Congress long ago granted a 9 percent tax break to all U.S. companies that produce things — be it a video game, an automobile, a newspaper or a gallon of gasoline. But last year, Democrats in Congress singled out oil and gas firms by slashing the credit for them to six percent.
Yet the New York Times — which led the cheering section for creating such a double standard in the tax code — hypocritically blasted oil industry tax breaks in a July 11 editorial (“Big Oil’s Good Deal”) without mentioning the fact that the newspaper receives the 9 percent tax subsidy.
The same Times editorial said “Congress should end these unjustifiable breaks and focus on encouraging alternative fuel sources that create cleaner energy and new clean-energy jobs.” But such energy sources provide only a tiny fraction of the nation’s energy needs now, and even with massive “green” subsidies from taxpayers, their market share will remain minimal for at least the next two decades, according to U.S. Department of Energy projections.
Do we really want to freeze in the dark until those cleaner energy sources become available in about 2030?