After years in the drawing room, Senate Finance Chairman Max Baucus, D-Mont., recently released a set of drafts addressing our nation’s outdated tax code. If the early drafts’ treatment of the energy sector is any indication, small businesses inside and outside of the oil industry have reason to be on high alert.
From intangible drilling costs to percentage depletion allowances and more — Baucus leaves few stones unturned when it comes to the tax treatment of oil and gas operators within these initial proposals. The industry, not surprisingly, is up in arms regarding the impact these draft plans, along with those focused on international taxation, would have on a sector that is creating more jobs and fueling more growth than any other.
Some lawmakers looking to raise taxes on oil and gas see little downside in going after the industry. They justify their proposals by claiming that the only victims of these tax hikes will be big energy company CEOs. Unfortunately, while it makes for good politics, such rhetoric is factually wrong. It fails to recognize the important value the industry provides across our economy. And just as important, it overlooks the pivotal role that small businesses play in fueling the industry’s growth and innovative progress.
Flawed as this logic may be (and really, should taxes be levied based on who can best afford it?), such politically expedient talk intentionally or naively downplays the impact that these increased taxes will have on the economy at large, as well as on the many small businesses and workers within the sector.
This spring my organization, the Small Business and Entrepreneurship Council, released an analysis examining the role of small business in the nation’s oil and gas industry. We found that the vast majority of firms engaged in the energy sector or in service of the sector are small businesses, most with 20 employees or less. Whether in extraction, operations, construction or machinery manufacturing, the numbers paint a clear picture. These firms grew faster than businesses in most other sectors and experienced robust employment growth. New business formation in oil and natural gas has been significant.
In reality, when the tax hikers talk about taxing big oil and big energy, they are hurting thousands upon thousands of small businesses that add to employment and economic growth.
The effect of the tax hikes will drive down new exploration and development initiatives, making such activities far less cost-competitive. They’ll make it that much harder for American companies to keep pace overseas and, therein, bring profits back home.
Outside of the firms large and small and the employees who will be directly impacted by tax hikes on U.S. oil and gas companies, such increases also mean higher energy prices across the board — including for small businesses.