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Politics Cloud Common Sense on Energy

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

While the nation struggles with gas prices hovering at $4 per gallon, our representatives in Washington are so busy pointing fingers at each other they have failed to take the necessary, prudent steps that would address the problem: chief among them, carefully allowing more domestic production to stabilize oil markets.

The President, focused on his 2012 re-election campaign and nervous about upsetting a vocal portion of political allies in his base, is instead trying to blame the very energy companies whose production his policies are limiting. Others, including many Republicans (and a significant number of Democrats) are seeking to expand U.S. oil and gas development, and with it the chance for a robust, job-creating economic recovery.

Though the political rhetoric is difficult to cut through, from the taxpayer’s standpoint the solutions are clear, and so are the consequences of legislative missteps.

One such blunder would be to heed the Administration’s call for new taxes on energy companies, a message it peddles under the guise of eliminating “subsidies.” For a brief period, even the Speaker of the House seemed receptive to the President’s line, but taxpayers shouldn’t buy this snake oil.

The President’s budget (as well as legislation being crafted in Congress) would deny “dual capacity” protection against double-taxation on oil and gas companies’ earnings from abroad, where they operate to secure energy resources in constant competition with other countries’ firms. This provision helps to offset America’s overly complex and burdensome corporate tax system.

According to the “Paying Taxes 2011” rankings published by PricewaterhouseCoopers and the World Bank Group, the U.S. places a dismal 124th out of 183 countries for total tax rate on a typical company. Contrary to political spin, our oil and gas industry often bears the worst of this burden, averaging a 48 percent tax load as a share of profits (well above that of most sectors). The easiest way out of this mess is tax reform for all businesses. But singling out American oil and gas companies by removing their dual capacity shield, while leaving the rest of flawed tax system in place, would be a crippling blow to U.S. energy diversity.

Also at stake in this debate is the health of our domestic economy. Not only does the industry support 9.2 million American jobs, affordable energy is key to productivity gains for numerous goods and services. It likewise feeds approximately $100 million daily into federal and state government coffers through lease payments, royalties, and other taxes. Ironically, allowing this activity to grow provides a better long-term prospect for deficit reduction than taxing it into non-competitiveness. And there are other lesser-known benefits.

A study into specific state pension plans to support the retirement of our nurses, teachers, fire fighters, and other public servants revealed that 3 to 5 percent of the assets were in oil and gas, earning between 9 and 12 percent returns while other types of investments were tanking. With state pension plans facing a $1.26 trillion cumulative shortfall as of the end of 2009, taxpayers would only be further imperiled if tax-hikes undercut the performance of energy companies.

If boosting taxes under the false pretense of cutting subsidies won’t lower gas prices, what will? Increased supply via expanded domestic production. The Congressional Research Service recently indicated that the U.S. has more fossil fuel reserves than any other country in the world. Market forces from Middle East turmoil aside, our own flawed energy and tax policies have either cut off, slowed down, or threaten to slow down oil and gas development in the U.S. The moratorium slashed production by a third, while cancelled exploration plans locked away billions of barrels in U.S. deep waters. Environmental Protection Agency regulations could also put upward pressure on fossil fuel prices, while new rulemaking attempts could halt the natural gas boom – one which could supply the U.S. with over a century of domestic fuel.

Slamming energy production with new taxes in the midst of high gas prices and a large deficit is tantamount to lying on a hospital bed in need of serious medical attention, and firing the doctor whose assistance you so badly need. Committing to expanded production of our vast oil and gas resources, on the other hand, would send a message to calm markets, while benefiting the U.S. with more energy jobs, government revenue, and economic growth in the process. The only place this argument becomes unclear is our nation’s capital, where political smokescreens have clouded reality.

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