New Energy Taxes Threaten Economic Recovery

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Pennsylvania has a history of energy innovation. Since the first oil well was drilled in Titusville in 1859, more than 350,000 oil and gas wells have been drilled in Pennsylvania. We are once again on the cutting edge of the energy frontier with the promise of job creation and increased revenue through the prospect of Marcellus Shale. A study by Penn State University estimates continued development of Marcellus Shale would provide 111,000 new jobs and $987 million in state and local tax revenues by 2011.

However, a big threat to the booming gas industry and economic recovery could come in the form of new energy taxes.

At the federal level – while President Obama has conceded cap-and-trade is dead – he has also said, "Cap-and-trade was just one way of skinning the cat… I’m going to be looking for other means to address this problem."

The president’s "other means" includes using the EPA’s new authority to regulate carbon dioxide as a pollutant under the Clean Air Act, and imposing costly mandates on industry, farming, mining and other businesses. The battle over the EPA’s power to do this will be a major issue in the new Congress.

The president and his supporters are also using tax policy to advance their vision of a "green" agenda. The upshot? Significant job losses in the Commonwealth, and an end to the Marcellus Shale "revolution" here before it even begins.

A key part of the administration’s plan is eliminating a certain tax deduction for oil and gas firms. It is known as the Section 199 provision in the federal tax code, which was put into place in 2004 to help U.S. firms compete internationally. For a U.S. firm that qualifies for Section 199 relief, its tax rate is effectively reduced from 35 percent to just under 32 percent. This makes U.S. firms much more competitive with the majority of corporations from other industrially- advanced nations that pay lower corporate tax rates.

Instead, the president wants to raise taxes on our energy suppliers.

The Obama Administration is proposing to eliminate this tax deduction only for the oil and gas industry, while keeping it in place for all other industries. This will encourage more U.S. oil and gas companies to move their operations overseas – resulting in the direct loss of U.S. jobs.

The administration also hopes to eliminate the so-called "dual capacity" tax credit. This provision allows corporations to offset their U.S. income tax against foreign income tax paid where they do business. Enacted 25 years ago under President Reagan, this credit helps American companies compete against foreign companies on a level playing field. Without the credit, American oil and gas firms would be double taxed on revenues they generate in foreign lands.
In a new study by Louisiana State University economist Joseph R. Mason, Mason finds the combined effect of repealing the Section 199 and dual capacity provisions will eliminate 154,000 U.S. jobs from 2011-2012, with over 5,300 jobs lost next year in Pennsylvania alone and more than 40,000 over the next ten years.

That translates into $68 billion in lost wages on top of more than $341 billion in lost economic output nationwide over the next decade. Lost jobs and economic output will spill over into other key industries causing oil and gas companies to reduce investment.

Keep in mind that the world’s appetite for affordable oil, gas and coal will increase dramatically in the near future as developing countries rapidly industrialize.

Under the politically dubious cover of "ending subsidies" for oil and gas firms, the administration is working to raise costs for energy firms – hindering them from competing globally.

The effect of President Obama’s tax policy will be higher oil and gas prices for Pennsylvania consumers, an increased tax burden on Pennsylvania’s energy producers, lost jobs, and fewer economic opportunities for Pennsylvania workers. The Marcellus Shale industry, which is vital to the economic resurgence of Pennsylvania, will be harmed by the elimination of these important tax-relief provisions.

Voters sent a signal on November 2nd that excessive spending needs to stop – and neither state nor federal energy taxes are justified in order to maintain record spending.

Marc Scaringi is a Republican candidate for the U.S. Senate in 2012 and owner of Scaringi & Scaringi, P.C., a Harrisburg-based law firm.