Reform the Tax Code to Spur New Energy Industry Expansion

David Williams

September 25, 2014

This article orginally appeared on Pennlive.com on September 18, 2014

The U.S. economy has gained real steam in recent months. Last quarter, the groos domestic product grew at a very solid 4 percent. And, the most recent jobs report shows that the job market added nearly 210,000 positions in July.

The energy industry is a major contributor to this revival. American oil and natural gas businesses are in the midst of an unprecedented blossoming. In fact, the United States recently surpassed Saudi Arabia and Russia to become the number one energy producer in the world.

Federal lawmakers need to be wary of undermining this success. Destructive policies can stifle energy industry expansion and choke off the creation of new employment opportunities and general economic growth.

Right now, the oil and gas industry supports more than 9 million American jobs. According to respected industry watchers, the figure could jump to about 10.5 million before 2030.

The big caveat to this number is that the huge jobs gain is not guaranteed. It’s just a prediction. And there is a very clear legislative step available to federal lawmakers that could greatly improve the chances it actually materializes.

And that’s reforming the corporate tax code. The U.S. corporate rate now stands at 39 percent, the highest among developed nations. For the oil and gas industry, however, the effective tax rate is even higher, pushing 45 percent.

And our code is unusual in that it forces American companies that earn income abroad to pay U.S. taxes once they bring that money back home – in effect, this is double taxation of foreign earnings.

These gapping flaws in our tax code put American energy companies at a stark disadvantage internationally. Firms face an added difficulty when trying to attract foreign investment. Global financiers are often attracted away to foreign markets with less punishing tax burdens.

More importantly, the sky-high corporate rate leaves American energy firms with less capital to invest in new development projects. Drilling a new oil well and fracking a natural gas deposit are both incredibly expensive enterprises. High taxes leave less money to finance them.

Our corporate tax code is acting as a massive drag on the American energy industry. Oil and gas firms are already flourishing, but imagine how many more jobs they could create if the code were seriously reformed.

There is a long-standing, broad bipartisan agreement behind serious reform legislation. But that sentiment has yet to be translated into concrete changes to public policy.

In the past two years, the Obama administration, House Ways and Means Chairman Dave Camp, R-Mich., and former senator Max Baucus, D-Mont., have each proposed serious overhauls to streamline the code. These plans differed in some key particulars, but they would have all stirred new growth in the energy industry.

But none achieved traction. And the tax code continues to mount a huge economic toll.

The U.S. economic outlook is brighter than it has been in years. And the energy sector is a big reason why. New, sophisticated drilling techniques like fracking have opened up giant new swathes of territory for extraction. Energy-dense states like North Dakota are booming. And with producers continuing to innovate in their development technologies, there’s good reason to believe that the best is yet to come.

But this sector can’t reach its full potential on its own. It needs help from lawmakers. And the best thing Capitol Hill can do to stir accelerated energy sector growth is to streamline the tax code, ratcheting back this country’s very high corporate rate and eliminating provisions that discourage companies from bringing foreign profits back to American shores.

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