Guest writer

Pain ahead for state

Oil tax rise could stall growth, jobs

— It came as no surprise when President Barack Obama used his State of the Union address last week to solicit support for his green-energy agenda, promising to go “all-in on clean energy” and use oil and gas revenue to “shift our cars and trucks off oil for good.”

The feel-good rhetoric might be good politics. But it ignores the oil and gas industry’s very real contribution to the economy.

Squeezing that industry-which is exactly what the president apparently hopes to do-will slash jobs and do little to bring about the green-energy future he desires.

The underlying problem is that most of the White House’s energy proposals are based on myth, beginning with the notion that the federal government “subsidizes” oil and gas companies.

In fact, the so-called subsidies the White House has long called to eliminate are standard tax deductions available to many businesses.

For example, Obama has pushed to repeal the Section 199 manufacturing tax deduction, passed as part of the 2004 American Jobs Creation Act-which 25 Senate Democrats, including both Arkansas senators, approved.

Obama wants to eliminate this deduction, which is available to all manufacturers, only for the oil and gas industry.

Another White House target is the depletion allowance, which the Congressional Research Service has pointed out is simply the oil industry’s equivalent of a standard tax deduction for depreciation.

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The result could be catastrophic for jobs. Since the recovery started in June of 2009, overall employment has grown by a paltry 3 percent nationwide, but has shot up 21 percent in oil and gas extraction, according to the Bureau of Labor Statistics.

In Arkansas, the increase in the number of oil- and gas-industry jobs has vastly outpaced the state’s overall job growth, increasing by a whopping 122 percent from 2004 to 2008, according to a study by the University of Arkansas.

The same study found that in the Fayetteville Shale Play alone, the average annual wage was in excess of $74,000 per year, almost twice the average for jobs in the state.

The jobs-multiplier effect is also higher for the oil and gas industry than for many other sectors, meaningthat for every new oil and gas job, three more positions are created elsewhere.

Diverting oil and gas revenue to yet another bureaucratic office intentionally designed to rid the country of the industry would smother this success.

A Louisiana State University study found that if enacted, two White House proposals-the repeal of the manufacturing tax deduction and a set of changes to foreign tax-credit rules-would together cost 155,000 jobs over the next decade and $68 billion in lost wages, in addition to $341 billion in lost economic output.

Investors-particularly those saving for retirement-would get hammered as well. Almost half of the industry’s stock is owned by pension funds and individual retirement accounts, and another 20 percent is owned by mutual funds.

And while Obama has said his plan would increase government revenue, in the end it would collect less than $30 billion over 10 years in new taxes-which amounts to just 0.4 percent of the total deficit.

When you factor in all the adverse economic effects, the government could end up losing revenue overall.

It’s not as though the oil and gas industry doesn’t pay its fair share of taxes. In 2009, it paid $45 billion, according to the Tax Foundation, and the industry’s effective tax rate of 44 percent is higher than the rate for any other sector.

But picking favorites has already warped the energy market in potentially harmful ways. Consider the well-known bankruptcy of solarpanel manufacturer Solyndra-it was hardly unique. Several of the “green” companies that received federal support have gone bankrupt or are headed there.

Trying to discover and invest in the energy sources of tomorrow is a good idea. But we must find a way to do it without hurting the workers and consumers of today.

Skimming off additional revenue and raising taxes on the oil and gas industry would stop a major engine of economic growth in its tracks.

Kelly Robbins is the executive director of the Arkansas Independent Producers & Royalty Owners (AIPRO), based in Little Rock.

Editorial, Pages 18 on 02/20/2013

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