Writing back in January about President Joe Biden’s order to kill the Keystone XL Pipeline, I warned that that action was just an opening volley in a war on the domestic oil and gas business that would only intensify over the four years of his presidency. Nowhere is that intensification becoming more clear than in the President’s current effort to raise taxes on the industry.
In its “Green Book” related to the administration’s gargantuan omnibus budget bill, the Treasury Department uses this coded language to describe one of the overarching goals of the program: “Replacing fossil fuel subsidies with incentives for clean energy production”. This of course is nonsense, as I have written many times over the past decade.
The oil and gas industry not receive “subsidies” of the type that wind, solar and electric vehicles enjoy, i.e., direct transfer payments from the government to enormous corporations like Tesla, General Motors and Ford totaling billions of dollars every year. Some in the industry – mainly small producers and royalty owners – do benefit from the expensing of intangible drilling costs, which is similar to appliance manufacturers or pharmaceutical companies expensing their own cost of goods sold every year. Small independents and royalty owners also benefit from percentage depletion, a provision that is similar to depreciation of inventory in other industries. Biden proposes to single oil and gas out by repealing those oil and gas-related provisions, which have existed in the tax code for more than a century.
In all, the Green Book contains a whopping total of $147 billion in new industry taxes, which would negatively impact mainly the red states where oil and gas is produced in the U.S.: Texas, Alaska, Wyoming, Montana, Louisiana, North Dakota, Ohio and Pennsylvania. In most respects, it is the same nakedly political move that was attempted during all 8 years of the Obama/Biden administration without success. We’ve seen it all before; most of it, anyway.
One clever new means of attacking America’s oil and gas industry is the proposal by the administration and many congressional Democrats to double the rate of taxation from a little-known tax provision called the Global Intangible Low-Taxed Income (GILTI) tax. Created as part of the 2017 tax reforms, GILTI was originally intended as a way to tax companies that move their intangible assets – like intellectual properties – overseas to lower tax havens. The tax was specifically intended to target industries like pharmaceuticals and technologies in which companies have easily moveable, intangible assets.
International producers in the energy industry have become unintentional collateral damage of the tax. The industry is capital intensive and has tangible assets. Companies have to operate where the resources exist in the ground, often in far-away countries like Niger, Guyana, Gambia and Suriname. They are not operating overseas as a way to game the tax system.
Responding to the GILTI proposal, Jessica Boulanger, a spokeswoman for the Business Roundtable, said “The potential international tax increase is as large as any corporate rate increase and at least as damaging for the competitiveness of U.S. companies because it hurts their ability to compete in foreign markets head-to-head with foreign companies whose countries don’t impose such a tax.”
The Biden/Democrat proposal to double the rate from 10.5 percent to 21 percent would make U.S. companies less competitive in the global marketplace, likely raising little real new tax revenues to the government as companies sell off international assets. It’s a fool’s game entirely designed as a punitive measure on a disfavored industry, the sort of policy move one would expect to see from authoritarian governments in 3rd world countries.
Texas Cong. Kevin Brady, the ranking Republican on the House Ways and Means Committee, thinks the provision won’t be included in a final budget. “I think this is frankly years from being done, and I’m confident that Congress will reject any tax agreement that advantages foreign companies and workers over U.S. companies, or surrenders a key part of America’s tax base that we’ll need frankly to pay for our government services going forward,” he said.
This GILTI proposal is just one more part of this administration’s efforts to force the marketplace to bend to its political will in the name of fighting climate change. Making the production of fossil fuels like oil and natural gas more costly to produce is a big piece of the plan, since that would in turn render them more scarce and expensive for consumers. In that way, this sort of policy makes renewable energy more “competitive” in a way it can never become on its own in a free marketplace.
It is not an accident that this President’s response to a question last week about rising gasoline prices – which are up more than $1.00 per gallon since Election Day 2020 – was to immediately point to his plan to massively tax the industry that manufactures the gas. Those higher taxes will inevitably be passed onto consumers, a reality that Mr. Biden is well aware of.
For this President and everyone in his administration, higher energy costs are a goal, not a problem to be addressed. The sooner we accept that reality, the sooner the energy-related tax policies contained in the President’s budget bill begin to make perfect sense.