President Joe BidenJoe BidenOn The Money: Federal judge rejects effort to block eviction moratorium | Moderates revolt on infrastructure in new challenge for Pelosi | Consumer confidence plunges in August Erykah Badu apologizes for being ‘terrible guest’ at Obama’s birthday party McConnell calls for US airstrikes to stop Taliban advance MORE routinely talks about the need to create more quality, high-paying manufacturing jobs.
If the president is serious about achieving this goal, why is he pushing policies that will destroy high-paying manufacturing jobs in the oil and gas industry?
Biden has already pushed policies that have harmed these jobs including the killing of the Keystone XL pipeline.
Now, he wants to raise taxes on American oil and gas businesses in his $3.5 trillion spending plan by repealing important tax provisions that help these businesses invest, create jobs, and grow.
While the left calls these tax provisions “loopholes,” this is completely inaccurate.
Instead, these provisions are long-standing tax deductions and credits that promote manufacturing jobs and American energy independence. For instance, the deduction for intangible drilling costs (IDCs) allows independent producers to immediately deduct business expenses related to drilling such as labor, site preparation, repairs, and survey work.
There is nothing unusual about this provision — the deduction is consistent with immediate expensing offered to all business investments. Currently, taxpayers can immediately deduct the cost of most assets in the year they are purchased.
Expensing incentivizes new investment, leading to greater economic productivity, job growth and higher wages. It also simplifies the tax code by equalizing the tax treatment of new investments with other business expenses such as wages, rent, and healthcare costs.
Because the IDC deduction is just another type of immediate expensing, repealing the provision would disadvantage oil and gas businesses compared to other businesses, who will retain the ability to deduct the cost of new investments.
As noted in a 2014 study by Wood Mackenzie Consulting, repealing the immediate deduction for IDCs would cost 265,000 jobs in the long-term. Given this study was done almost a decade ago, and the energy sector has done exceptionally well in just the past few years, it is entirely possible that job losses would be greater if the provision was repealed today.
The study notes the elimination of IDCs would also result in a $407 billion reduction in investment because businesses will have less money to invest in new projects. Despite the drastic losses that would be suffered, repealing IDCs would raise little revenue. According to the Joint Committee on Taxation, repeal of IDCs raises $3.5 billion over the next decade. Biden’s FY 2022 budget optimistically assumes repealing IDCs would raise $10.5 billion. Evidently, the cost-benefit ratio here has been wholly unconsidered.
This proposed tax increase is just one of many that Biden has proposed. In all, he is pushing 30 tax increases totaling $3 trillion over the next decade. This includes roughly a dozen tax increases on oil and gas taxpayers as well as broader tax increases such as raising the corporate tax rate from 21 percent to 28 percent, imposing a 21 percent global minimum tax and doubling capital gains taxes.
Senate Democrats have also proposed comprehensive energy taxes such as a tax on methane and a tax on carbon imports.
Of course, the negative impact of these tax increases will fall on American workers and families. Oil and gas businesses collectively support nearly 11 million high-paying manufacturing jobs, including nearly 2 million in Texas.
In 2017, these jobs paid an average salary of $102,000, 85 percent higher than the average private sector salary.
This tax hike will also increase energy costs, which will fall disproportionately on low-income Americans.
Studies have shown that low-income households pay a significantly higher share of their income on energy costs. On average these households spend 7.2 percent of their income on utility bills, compared to higher-income households, which spend 2.3 percent of their income on utility bills.
These increased costs would slug Americans at a time when energy prices, and the cost of goods and services in general, have already increased significantly. According to the Bureau of Labor Statistics, gasoline prices have increased by 56 percent between May 2020 and May 2021, while consumer prices collectively have risen 5 percent.
After being reliant on foreign energy in past decades, the U.S. became a net energy exporter in 2019 and 2020. This achievement has helped America’s economy and continues to strengthen national security as we are less reliant on foreign powers for our energy needs. Instead of building on this, Biden would diminish it, a move that would increase global reliance on hostile nations like Iran and Russia for energy.
The Biden plan to raise taxes on American energy is misguided and will harm workers and businesses in Texas and across the country. It will raise prices, threaten high-paying manufacturing jobs and further weaken U.S. energy independence. Rather than these reckless tax hikes, we should be pushing policies that help the economy grow.
Alex Hendrie is director of Tax Policy at Americans for Tax Reform, a nonprofit advocacy organization dedicated to lower taxes and limited government
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