Energy fees will hurt U.S. competitiveness

Congress' proposed $15,000,000,000 tax hike on the U.S. oil industry will raise consumer prices and put domestic companies at a competitive disadvantage, warns the Institute for Energy Research, Washington, D.C. At the same time, rather than allowing open debate of the details of this misguided energy policy, House Speaker Nancy Pelosi is avoiding public scrutiny by refusing to review the bill in a bipartisan conference committee. This closed-door approach to reconciling the energy bill only underscores its shortcomings: less energy and higher prices.

Robert Murphy (economist for IER), Ben Lieberman (senior policy analyst with the Heritage Foundation), and Margo Thorning (senior vice president and chief economist with the American Council for Capital Formation) maintain that there are possible unintended consequences for consumers and businesses of higher taxes on the oil and gas industry. For example, the Windfall Profits Tax of the 1980s resulted in lower domestic oil production, higher oil imports, and a depressed U.S. oil industry with reduced profits that limited the development of technologies for obtaining oil in deeper offshore and onshore wells.

"This proposed tax hike would generate only $15,000,000,000, whereas opening exploration in the Alaskan National Wildlife Reserve would generate $75,000,000,000 in revenue," Lieberman points out. This type of pro-growth strategy, he adds, would preserve American goals of increased supply and energy security, whereas taxes undermine them. Lieberman characterizes the current proposal as "raising taxes on energies that work in order to subsidize energy sources that don't work," referring to the economic inefficiency of biofuel and wind power.

Murphy catalogues the failures of past attempts to tax or regulate energy prices, and the damage that was done to consumers in gas shortages, lost time, and escalating costs. We can expect more of the same, he asserts, if proposed legislation passes. "High taxes and controls by the U.S. Federal government raise the world price of oil, which makes the U.S. more dependent on foreign producers and U.S. companies less competitive in a global market." He also notes that oil companies are paying their share of income taxes, almost $70,000,000,000.

Expressing concern about the compromising of U.S. competitiveness, Thorning states, "The tax code is a ball and chain around American industry--putting U.S. firms at a disadvantage." She encourages legislation that would reduce the cost of capital for new energy investment and promote availability of domestic petroleum supplies rather than imposing more punitive taxes on the oil industry.

Speaking on price gouging and quoting a June study that was commissioned by ACCF, Thorning contends that, "If price controls like those being considered in legislative proposals earlier this year had been in effect in 2005 during Hurricanes Katrina and Rita, losses to households and business would have totaled $1,900,000,000."

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