Energy & Environment

Obama Budget Games

Here we go again.  The pole vault and parachutes plan for killing America’s domestic oil and gas industry reared its ugly head again yesterday in the Obama budget proposal.  With the job and industry-killing cap and trade national energy tax on hold during an election year — if not riding out the entire Obama Recession – the new budget proposal (pdf, page 4)  seeks to impose nearly $40 billion in new taxes on America’s domestic oil and gas producers. 

These taxes won’t simply affect large producers like Exxon/Mobil or Shell Oil companies but will sound the death knell for the small businesses that comprise the overwhelming majority of domestic energy production.

Approximately 90 percent of America’s oil and gas wells are drilled, produced and operated by small independents.  Currently, legitimate tangible business expenses for the industry, such as a physical pipe or a pumping unit, can be written off but must be amortized over five years.  Obama would extend that period to seven years.  Bad, but not fatal.

But there’s much more.

The Obama budget seeks to eliminate the tax write-off of legitimate “intangible” drilling expenses that allow especially these smaller companies to take the risks involved in drilling new oil and gas wells.  “Intangibles” include things like the cost of drilling the actual hole in the ground. 

The independent oil and gas industry, mostly “mom and pop” shops employing many thousands of people across the country, cannot absorb the exorbitant new taxes proposed in the Obama budget and survive. 

I spoke yesterday with Rep. Charles Boustany, M.D. (R-La.), whose district hugs the oil and gas rich Louisiana Gulf Coast, about the impact these new taxes will have on his district and the industry.

“There is a tremendous amount of investment that goes into trying to get oil and gas out of the ground and from under the ocean,” Boustany told HUMAN EVENTS.  “The bottom line is if companies are not able to take the risk then we’re going to see the loss of jobs.  At a time when this country’s in a big recession that should not be what we want.” 

“The government should not be picking winners and losers in the energy industry,” Boustany continued.  “What we ought to be doing is looking for ways to unleash individual entrepreneurism and genius to solve our energy problems.  We ought to be investing in technology and not taking a punitive approach to energy production.”
Clean burning natural gas is considered by thinking people as the fuel that would at some point be used as a transition to future energy sources.  Natural gas is pulled from the ground by drilling wells, which the Obama administration seeks to sharply curtail through taxation.

“There’s either a fundamental lack of understanding of this industry on the part of this administration or they’re deliberately trying to wreck it for some political and ideological reasons,” Boustany said.  “Just keep in mind we don’t have any other alternatives right now.  We don’t have enough nuclear reactors to provide adequate electricity for the country, nor do we have alternative energy measures to meet our needs now or for the foreseeable future.  It’s critically important to support our domestic oil and gas industry so we can meet our energy and security needs but also for the job creation that will come from it.”

“There’s no question, when you impose putative tax measures on our current energy production without a reasonable and viable alternative in place, energy costs are going to go up significantly for families,” Boustany continued.  “We know what happened [in the summer of 2008] when there were shortages when demand was high.  Prices went up to the $4 range per gallon.  Oil was up at $150 per barrel. 
Back in the 80s, we saw Congress enact a “windfall profits tax” on the oil and gas industry.  We talked about the effect that tax had on domestic energy production and the cost at the pump.

“What it ended up doing was it devastated our domestic industry, it wiped out jobs on the Gulf Coast and around the country, it shipped a lot of those jobs overseas, and it also ran up the price of oil and gas,” Boustany said.  “We became more dependent on foreign sources of oil and gas as a result.  It was a dismal failure, and that’s exactly what the taxes will do if imposed.  In fact, some oil and gas executives as well as some of the workers who’ve been through that type of problem before in the 80s have told me that these tax increases will be even worse than the windfall profits tax.” Boustany says these energy jobs are already being run out of the country before the crippling new taxes.

“Every time I fly home or fly back up to Washington I run into typically half a dozen workers who’re coming in from all over the globe,” Boustany said.  “They used to work in Louisiana, they’re native Louisianans, and now they’re working with foreign oil companies around the world producing energy.  They would like to see those opportunities closer to home.  There are millions of energy jobs that we would see, and these are good-paying jobs that provide excellent benefits.  Those are the kind of jobs we need to produce in this country and this industry is an industry that could support those whether you’re talking about oil and gas production all the way to refining.  These are critically important, well-paying jobs with excellent benefits.”

The kind of jobs that support families and boost the economy.

Cartoon by Brett Noel


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