Corporate Tax Reform Could Give Energy Sector Big Boost

Michi Iljazi

June 1, 2015

Time is running out for this current session of Congress to address many issues.  While there has been some positive movement on important legislation dealing with trade and the budget, there are several issues outstanding that elected officials need to address before the end of the year. Corporate tax reform is one of the easiest and most important of the unresolved issues facing Congress. Tax reform is critical and corporate tax reform could be the key to unleashing a major boost in energy production.

The United States has had the corporate tax rate the world since April 1, 2012. This is not something to be proud of and it is the reason businesses are fleeing the country at a disturbing pace. Last summer, Roberto A. Ferdman at The Washington Post noted the downward trend:

The number of U.S. companies reincorporating overseas has shot up considerably in recent decades.

Nearly twice as many companies (47 in all) have shifted their corporate tax paying duties abroad since 2003, or almost double the amount that did in the twenty years prior, according to data from Congressional Research Service (CRS). And the acceleration is only slated to continue: At least another 12 are currently planning to do the same, according to CRS.

What is even worse is that instead of finding ways to encourage these companies to stay and invest in America, the Obama Administration has continued to treat these corporations as villains. This type of hostility and refusal to reform the corporate tax structure is contributing to a stagnant economy. With the recent news that the GDP actually shrunk in the first quarter of 2015, there’s no better time than now to reform the corporate tax rate.

Reforming the corporate tax rate is key to providing a needed jolt to the overall economy, but it could also be of particular importance to the energy sector. With an effective corporate tax rate for oil and gas of more than 40 percent, there are a number of dollars being siphoned off from an industry that could increase hiring by more than one million workers in the next fifteen years according to estimates from the American Petroleum Institute (API). It is also important to note how important these particular jobs are in terms of making the energy sector one of the most competitive and productive components of the US economy.  According to API:

The API report said the oil and natural gas industry supported 9.8 million U.S. jobs and 8% of the U.S. economy, and it identified nearly 30,000 companies (and their employees and families) located in every state that are benefiting from the boom in U.S. energy production. The API report points out that salaries earned by employees in the oil and gas industry even in non-producing states are significantly higher than average salaries in those states.

Overhauling the tax structure is receiving attention from some key lawmakers on Capitol Hill, which is encouraging, but until there is legislation brought to the floor that explicitly lowers the corporate tax rate the United States will continue to fall behind globally and lose more corporations to nations overseas.  Legislation introduced this year by Sens. Marco Rubio (R-Fla.) and Mike Lee (R-Utah) is a major step forward for tax reform. The plan is pro-growth and pro-business with a proposal to cut the corporate tax rate to 25 percent.

Corporate tax reform that reduces the rate is exactly the boost the energy sector (and all businesses) needs to invest more in the nation. The reforms to the corporate tax code will also help to put the American energy sector on better footing with international competitors.