Study: Tax changes would exacerbate deficit

By OGJ editors
HOUSTON, July 12
-- Two tax changes affecting US oil and gas companies under discussion as ways to lower the federal budget deficit would cost the government more money than they’d raise, according to a new study.

One of the changes would prohibit oil and gas companies from using the manufacturer’s deduction created by Section 199 of the American Jobs Creation Act of 2004. The other change would create new limits on foreign tax credits by US dual-capacity taxpayers, which—like international oil companies—deal with a foreign country as both a sovereign and provider of economic benefits.

The Obama administration has included the changes in each of its annual budget proposals. Lawmakers recently have proposed them for the five largest US oil companies as ways to increase federal revenue.

The new study, by Louisiana State University Prof. Joseph Mason, says the changes shouldn’t be considered deficit remedies. Building on a study he conducted last year on economic effects of the proposals, Mason warned of opposite consequences.

“The proposed revisions to Section 199 and dual capacity for the oil and gas industry are expected by the [Department of the] Treasury to raise approximately $30 billion in federal tax revenue over the next 10 years,” he said. “But this comes at the expense of industry cutbacks that can reasonably be expected to cost the economy some $341 billion in economic output, 155,000 jobs, $68 billion in wages, and $83.5 billion in reduced tax revenues.

“The net fiscal effect, a loss of $53.5 billion in tax revenues, suggests that the policy proposals exacerbate, rather than alleviate, the federal deficit.”

Mason’s report, sponsored by the American Energy Alliance, found “no basis for classifying changes to Section 199 and dual capacity as deficit reduction measures. Rather, those changes remain squarely within the confines of the Obama administration energy policy, creating a tax drag on economic growth in an attempt to engineer a social shift away from fossil fuels.”

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