Sepp: Collateral Damage From the BP Spill

Posted July 28, 2010 at 2:13pm

Over the past 18 months, the health care, financial services and other industries have been saddled with crippling regulations, increased government intervention and in some cases punitive taxation, thanks to the Obama administration and lawmakers in both chambers of Congress.

[IMGCAP(1)]Now, in a calculated response to the BP oil spill disaster, the White House and its supporters have not only concocted a job-killing moratorium on offshore drilling, they’re also crafting energy legislation that raises billions in taxes; makes American producers less competitive on the world market; and increases costs for working families to heat their homes, run their cars and put food on their tables.

While no one would argue that the BP spill was an egregious event that resulted from a long history of bad decisions from the company, even many of the president’s allies agree that the administration’s decision to place a moratorium on offshore drilling holds devastating consequences for the Gulf Coast.

Sen. Mary Landrieu (D-La.), in testimony before one of three panels created to study the BP spill, noted that deep-water drilling accounts for 80 percent of the Gulf’s oil production and 45 percent of its natural gas output. She has called for lifting the latest moratorium in order to “save our businesses, our economy and our way of life.”

As Charlotte Randolph, president of Lafourche Parish, said recently: “Mr. President, you were looking for someone’s butt to kick. You’re kicking ours.”

In their continued attempt to not let the “opportunity” of another crisis go by, the administration and Congressional leaders are crafting an energy bill that will raise taxes on U.S. energy companies by up to $40 billion. The punitive tax hikes would take long-standing tax deductions, available to many companies and industries, and deny them to oil and gas companies.

Central to the political mantra of “rolling back tax breaks for oil companies” is selective repeal of the foreign tax credit. Under U.S. tax law, American companies receive a credit for the income taxes they pay to foreign governments, and this serves to eliminate the burden of double taxation that might otherwise result. The new tax bill would restrict or eliminate this credit, but only for one industry. As a result, American oil and gas companies would pay substantially higher U.S. taxes on the income generated from international business.

As so often happens when policy is crafted for the benefit of campaign-trail talking points, these tax hikes would result in cheers from some interest groups in Washington, D.C., and groans from Americans who could lose their jobs from as much as $40 billion in additional taxes that would be heaped on the industry. Perhaps most ironically, companies headquartered abroad (like BP) would not be appreciably affected by the measure, ensuring that they would gain a competitive advantage while American companies were forced to cut jobs and raise gas prices.

As we’ve seen in recent years, higher gas prices hurt Americans at more than just the gas pump — they force us to pay more for food, goods and heating our homes. In addition, billions in new taxes will hurt an industry that employs millions.

This is certainly not a plea to raise taxes on foreign firms that do business in our country; rather, it is a call for common sense. The BP leak is a tragedy from which the energy industry and government should learn lessons about accountability and oversight. It should not serve as an opportunity to leverage the suffering of Gulf Coast residents on behalf of harsh, arbitrary tax policies.

But even if there is no political calculus behind these tax hikes, the result would be the same: job providers based here would fall further behind in their ability to compete, while everyday Americans would fall further behind on the road to economic recovery. Unlike many consequences of the Gulf spill, this kind of collateral damage is entirely avoidable if policymakers recognize the dangers of their own tax proposals.

Pete Sepp is executive vice president at the National Taxpayers Union.