The Cruelest Tax Increase of All

The political carnival that spilled out of the doorway of the House chamber during last week’s energy-tax-hike bill (H.R. 5351) debate has once again blocked the avenue to a serious market solution to our nation’s energy crisis.

Despite the fatal future that lies ahead within the Senate, House Democratic leaders opted, for a fourth time, to advance an energy tax bill that not only fails to meet the needs of American consumers but also further imperils our country’s ability to achieve energy security and independence. Indeed, as the Majority’s call for “common sense” reforms and a “new direction” for energy policy echoed throughout the halls of Congress, many of us in Washington were not so easily deceived by such stale, empty rhetoric. Yet, as with every good political debate, the devil is always in the details.

So, what exactly does H.R. 5351 mean for America? And, what does it mean for working families, seniors and entrepreneurs struggling to make ends meet during this time of economic hardship?

In short, it means higher energy prices across the board and greater dependence on foreign oil.

Today, gasoline prices are nearly 40 percent higher than when Speaker Pelosi took the gavel. The price of oil has topped $102 per barrel (a barrel of oil was $55 when the new liberal Majority took control of Congress). At a time when the American economy is teetering on the lip of recession, Washington ought to embrace an energy policy that meets the needs of our economy now and well into the future. Yet, H.R. 5351 will raise prices at the pump now and create a looming sense of uncertainty, which will compound the forces increasing energy prices in the marketplace well into the future.

Although, at its core, this measure purports to attack Big Oil profits, H.R. 5351 grossly misses its mark, punishing American energy producers that take their profits and re-invest them in domestic production.

As part of 2004 corporate tax legislation, Congress created the Section 199 domestic manufacturing tax deduction to spur increased production, including energy exploration and refining, in the United States. By simply redefining the term “manufacturer” in the tax code, H.R. 5351 strips away tax benefits from the five largest oil and gas producers (Chevron, BP, Exxon Mobil, Shell and ConocoPhillips) in the country and freezes these benefits at six percent for the rest of the industry. By taking away the very tax incentives that have promoted oil and gas exploration here at home, this bill will undoubtedly diminish the ability of domestic companies to produce energy, thereby, raising energy costs for cash-strapped consumers. The effects of high gasoline and home energy costs will continue to ripple throughout the economy, increasing prices on everything from food, to electronics to school supplies.

The $13.7 billion tax increase is also an assault against America’s manufacturing base. Using nearly one-third of the nation’s energy both as fuel and feedstock, energy production is the heart of American manufacturing. With such an energy intensive sector, raising energy prices will further erode the competitive position of domestic manufacturers in the global market, forcing more of our good-paying jobs overseas. 

Even more disturbing is this legislation’s curtsy to anti-American interests. Although the partial rollback of Section 199 is designed to punish large domestic energy producers, this populist legislation protects Citgo, a wholly-owned subsidiary of the Venezuelan state owned oil company. While this legislation strips proven incentives to bolster needed domestic energy production, it offers a sweetheart deal to the leftist piggybank of Hugo Chavez, the sinister dictator that has threatened to disrupt Venezuelan energy supplies to America. 

The Democrats’ energy initiative also establishes a new $3.6 billion slush fund to pepper favored constituencies with local “green projects,” indiscriminately doling out tax credits and bonding authority to Governors and big city mayors. While these green pork projects may sound impressive to sophomores, the legislation offers no effective standards or safeguards to guarantee that these resources would be used to meet national environmental priorities or improve energy independence. It takes little imagination to see how this program could be abused with the national credit underwriting the replacement of police cars with Lexus Hybrids or purchasing energy efficient water heaters for hot tubs at a California spa resort. If House Democrats want to invest in new technology, they should openly debate and define their priorities. Provisions such as this are political pork barrel at it worst and make clear the architects of this legislation have opted to leave American working families out in the cold while putting special interest groups before market forces. 
At least in the short run, Republicans and Democrats ought to be able to agree that we should promote market policies that bring more energy to market, encourage conservation and develop new renewable sources. America has vast domestic energy sources that can be deployed in an environmentally friendly manner: coal, oil shale, natural gas, nuclear power and new technologies to take kinetic energy from oceans to name a few. Yet, H.R. 5351 does nothing to encourage drilling in the Outer Continental Shelf (OCS) or the Artic National Wildlife Refuge (ANWR) or tapping into these other conventional energy sources.  It includes nothing to lift artificial government restrictions on access to these energy sources or encourage a free market to bring more energy to the American consumer through price signals.  Instead, the far left is determined to drive up the cost of energy at the expense of economic freedom and America’s standard of living.

America’s energy crisis is no longer an issue that can be turned into a political football that is simply punted to the next Congress. At a time when the American economy is reeling from unstable energy costs, Congress ought to be able to advance a bipartisan energy agenda that will encourage conservation, increase the use of renewable energy and further develop new technologies to create a more sustainable energy supply. Ralph Waldo Emerson once quipped, “A foolish consistency is the hobgoblin of little minds.” Let’s hope that the House will not have a fifth go-around at another energy-tax-hike bill.  It is simply not the answer.