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A Job-Killing Tax Hike in this Economy? What Are They Thinking?!

The opinions expressed by columnists are their own and do not necessarily represent the views of
One of the most contentious debates going on right now in Washington concerns the corporate tax code. Corporate tax rates have been falling worldwide, the only exception being the United States. The combined tax rate – federal, state and local – in our country is now 40 percent, according to a 2008 survey by KPMG. By comparison, the combined rate in OECD (Organization for Economic Co-operation and Development) countries is 26.7 percent; in the European Union, 23.2 percent.

Now consider the politically driven attacks on the oil and gas industry which are described, in disingenuous terms, as an effort to close “loopholes” and “special breaks.” The Obama Administration and its allies in Congress are pushing what amounts to tax increases aimed at energy firms. We should all be concerned. These are the businesses that America depends on to power the economy with affordable energy, fund new technologies, and support good paying jobs for more than 9 million working men and women throughout the economy.

One of the most flagrantly ill-advised measures now on the table is a plan that Finance Committee Chair Max Baucus (D-MT) recently crafted to fund a small business jobs bill. He would pay for his bill by hiking taxes on domestic energy production through the elimination of the Section 199 manufacturing deduction for only American oil and gas companies. The original goal of the Section 199 deduction was to spur job growth among all American manufacturers. Those who want to eliminate the Section 199 deduction for energy companies are characterizing it as a “tax break” that is unique to oil companies and therefore unjustified: It is no such thing.

Politicians intent on making political hay by going after so-called “Big Oil” conveniently omit the fact that this sector receives less in targeted tax incentives than renewable energy. Even using one of the political left’s favorite terms, renewables will receive a yearly average of almost 13 times as much in “tax expenditures” as integrated oil and gas firms. That’s according to a recent National Taxpayers Union analysis of Joint Committee on Taxation data. What’s more, renewable energy still fails to stand on its own after three decades of heavy subsidization and consistently increasing federal support.


In effect, repealing the Section 199 deduction for oil and gas companies would amount to a federal tax hike, raising rates from 32.9 percent to 35 percent. What happens when tax rates are increased? The result will unavoidably be higher energy prices on small businesses and families, at the precise moment that they are struggling with an ailing economy.

This is the price all of us will pay unless we can find a way to be honest about the realities of our tax system. It’s reducing our comparatively high level of tax rates overall – not “tax breaks” – that should be occupying elected officials. Furthermore, risking the broad effects of higher energy prices on economic growth to support a ‘jobs’ bill is backwards, misguided policy.

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