Feb 14, 2011 America’s Independent Producers Targeted in President’s Budget – Tax Increase Will Reduce Jobs, Government Revenues While Threatening Energy Security
WASHINGTON – Documents released by the White House today suggest that President Obama will attempt to resurrect a series of punitive tax hikes on U.S. producers of oil and natural gas in his budget plan for 2012 – tax increases that were proposed the last two years, but were soundly rejected by Congress. On the heels of today’s announcement, Barry Russell, president and CEO of the Independent Petroleum Association of America (IPAA), released the following statement:
“Contrary to the president’s belief, his budget proposal does not target so-called “Big Oil”, but instead goes after the thousands of small businesses, America’s independent oil and natural gas producers, who on average employ only 11 workers. These small business producers are dedicated to finding and producing America’s energy resources, creating jobs, generating revenues and supplying reliable and affordable energy all across the United States. American production activities are dominated by independent producers who produce 90 percent of the U.S. wells, produce 72 percent of U.S. natural gas and 44 percent of U.S. oil.
“Despite what you’ll read in today’s budget plan, here are the facts: Virtually no industry in the United States pays more in taxes, royalties and revenues than America’s natural gas and oil producers. The industry pays federal taxes at a rate of 48 percent, as well as substantial state and local taxes to drive those local communities. For example, the Louisiana Department of Education reported that some school districts located near the Haynesville Shale now have the highest paid teachers. According to the department, the increase in salaries is a direct result of the share of increased sales and property taxes received by the school districts from the Haynesville Shale production activity. Simply put, lost capital investment due to increased taxes will reduce these tax payments over time, not increase them.
“The production industry alone employs nearly half a million workers and pays almost 50 percent higher than manufacturing jobs, according to the 2008 Bureau of Labor Statistics. Very few industries have the potential to create as many better than average paying jobs as quickly and effectively as we do. Look no further than North Dakota, where unemployment has fallen to the lowest level in the nation, 3.8 percent, less than half the national rate of 9 percent, which is due in large part to the huge increase in energy production in the Bakken formation.
“Historically, independent producers reinvest as much as 150 percent of their American cash flow back into new American production. Increasing taxes on independent producers will reduce capital investment in the industry, and it will result in fewer jobs, less revenue to American governments, hurt American retirees, whose mutual funds, pension plans and Individual Retirement Accounts are invested in publicly traded oil and gas companies, and harm American energy security.
“In repudiating the president’s attempt last year to impose prohibitive tax policies on those who find and produce energy in America, Congress rightly recognized the important role that small, independent energy producers can play in fueling the short-term recovery and long-term revitalization of our struggling economy. Unfortunately, in the president’s search for ‘easy’ revenue, he appears once again to be endorsing a series of tax changes that will result in fewer American jobs, less government revenue, and a tightening of our already dangerous dependence on foreign, unstable energy. Just like last year, IPAA will continue to take its case directly to those in Congress – both Democrats and Republicans – who recognize the value that small, independent American energy producers can deliver if given the opportunity to do it.”
- Drilling costs are 20 to 35 percent of the capital expenditure budgets of independent producers, meaning without the ability to expense these costs, an independent would have to reduce their drilling budget by as much as one-third almost immediately.
- All mineral resources are allowed to use percentage depletion as a way to reflect the decreasing value of the resource as it is produced. For oil and natural gas, only independent producers and royalty owners are allowed percentage depletion and only on U.S. production.
- Further, percentage depletion is limited to the first 1,000 barrels/day of production (along with other limits), thereby making it a provision that is largely used by small business producers and royalty owners.
- Small business producers are the primary operators of America’s marginal oil wells (19 percent of U.S. production) and marginal natural gas wells (12 percent of U.S. production).
- Fact Sheet: An Introduction to U.S. Oil and Gas Industry Taxation
- Fact Sheet: Increasing Taxes on America’s Independent Natural Gas and Oil Producers – Bad Idea
- Friday Fact Check 2/11/11: White House, American Oil, Natural Gas Foes on Capitol Hill Ready Massive, Job-Crushing Tax Hikes