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In his 2013 State of the Union address, President Barack Obama championed our nation’s energy policy and reaffirmed his goal of cutting net oil imports in half by the end of the decade. He said, “Today no area holds more promise than our investments in American energy. After years of talking about it, we’re finally poised to control our own energy future. ... We produce more oil at home than we have in 15 years. ... We produce more natural gas than ever before and nearly everyone’s energy bill is lower because of it.” Three months later, the president released his budget proposal, which eliminates tax incentives for the oil and gas industry, calling them “tax giveaways.” The president might achieve his goal of ending what he calls “oil subsidies that keep us trapped in the past,” but he will do so at the expense of sound energy policy.
The nation’s energy policy is inextricably tied to the nation’s tax code. Tax laws are central to the development of domestic energy resources. The tax code may not be the best way to design a strategically sustainable energy policy, but for the past century, it has been the most important. In the coming months, as the congressional debate over tax reform intensifies, the nation’s energy policy should be central to that debate.
The president is right to champion the progress that has been made by the oil and gas industry during his presidency. Within the past two years, the potential supply of natural gas in the United States has increased by 26 percent. Almost half of the country’s natural-gas production has occurred within the past four years. This is a phenomenal achievement. New technologies and advancements in horizontal drilling and hydraulic fracturing have enabled the oil and gas industry to find and recover enormous reserves of natural gas. As a result, the United States now has a 100-year supply. In the near future, by making the right choices, America could become energy independent.
The tax code is in great need of reform. America’s corporate tax rate is the highest in the world, and Americans deplore the complexity and inconsistencies in the tax code. While comprehensive tax reform may not be possible in the highly partisan environment of this Congress, the potential passage of an incremental tax bill is significant. The upcoming debate over fossil fuel taxes will not only be about policy. Members of Congress will be looking for additional revenues, and the oil and gas industry is a ripe target. Eliminating the industry’s tax breaks will raise an estimated $44 billion.