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Don't Raise Taxes to Avoid the Sequester

The opinions expressed by columnists are their own and do not necessarily represent the views of

President Obama has a new plan to avoid sequestration: kill private sector jobs. In 2011 Republicans required spending cuts to raise the debt ceiling. President Obama suggested that, in addition to freezing spending levels, broad-based spending cuts be implemented on March 1, 2013 via sequester.

Listening to Obama’s Press Secretary Jay Carney, you would never know that the sequester Obama is so eager to avoid, in fact, came from the White House. Citing estimates that 750,000 people could lose their jobs as a result of the sequester, Carney told reporters on Feb 20 that “the choice that Republicans are making is … throw these people out of work in order to protect these special tax breaks for corporate jet owners and oil and gas companies. It makes no sense and it’s bad policy.”

Republicans have passed legislation that would replace the sequester with targeted, equivalent spending cuts. Democrats and the White House are using the threat of sequestration as justification for tax hikes – surprise, surprise. Negative consequences associated with the mechanisms of sequestration, like job loss, are not caused by oil and natural gas companies’ expensing provisions, but result from an intransigent Democrat Party. According to this ideology, every problem, even the ones Democrats are responsible for, can only be solved one way: tax increases to fund more government spending.

Categorizing the oil and natural gas producers’ expensing provisions as tax breaks or subsidies makes it easier to justify raising taxes on this industry, which is why Democrats do it. Like every other industry, oil and natural gas producers are allowed to deduct some of their expenses. For example, one “subsidy” Obama wants to repeal is the Domestic Manufacturer’s Deduction known as Section 199. While all domestic manufacturers are eligible to employ Sec. 199 and deduct 9 percent of the income earned from manufacturing and extracting, oil and natural gas producers can only deduct 6 percent of the same expenses. Democrats would like to drag the already penalized 6 percent rate down to zero.

But for the sake of argument, let’s pretend that the federal government isn’t paying old people to play video games and handing out cellphones to IRS employees like candy. Let’s pretend that government agencies really can’t afford any budget cuts and President Obama got the tax hikes on oil and natural gas companies he has argued for since he wrote his first budget.

What would happen? Depending on which expensing provisions Obama repealed, he would likely get about $5 billion a year in taxes hikes to avert a portion of the sequester – a tiny portion of the sequester. With the sequester slated to reduce government spending by $85 billion this year, replacing $5 billion in cuts with new oil and gas revenue would prevent six percent of the sequester from going into effect. That’s right, six percent. Obama’s purported solution doesn’t even solve the problem he created!

Continuing our hypothetical example where Obama raises taxes on oil and natural gas producers to avoid spending cuts, let’s examine how these punitive tax increases impact the industry responsible for over 9 million American jobs. Economists at Wood-Mackenzie estimate that repealing a handful of tax provisions would kill 170,000 domestic jobs in 2014 and an additional 78,000 jobs over the next decade.

Job losses resulting from Obama’s tax hikes would be borne by blue-collar workers as domestic oil and natural gas exploration declined. Manufacturers and other industries that supply oil and natural gas producers would also feel Obama’s tax hikes. Constantly lobbying for tax increases that would cripple the private sector, it is clear that Obama values government workers more than private sector, productive workers. What Obama is really proposing is private sector layoffs in exchange for more bureaucrats.

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