Targeting “Big Oil” Means Higher Gas Prices
Wednesday, April 2nd, 2008 By Marc KilmerJerry Taylor at the Cato Institute blog has an excellent commentary on the “Big Oil” Congressional hearing:
The main issue is the so-called Section 199 tax credit passed in 2005. The credit is available to all domestic manufacturers – not just to oil and gas companies – and it allows the oil industry to write-off $13.6 billion over ten years that might otherwise be sent to the federal treasury. While a good case could be made to get rid of Section 199 in toto – the feds shouldn’t be in the business of artificially making some business activities more economically attractive than others – limiting that deduction for oil and gas companies and oil and gas companies only will compound the underlying economic distortion and encourage investors to put relatively less money in oil and gas production and more money in other industrial sectors. How is that a good thing with oil prices topping $100 a barrel?
Oil companies are already paying a staggering tax bill. In 2006, for instance, big-bad ExxonMobil faced an effective tax rate of 44 percent on a profit margin of around 11 percent, a figure that actually understates things because corporate revenues sooner or later find their way to oil company employees, contractors, shareholders, and those who do business with the same, and that revenue is taxed again via the personal income tax.“So what?” you ask? Well, the more you tax “Big Oil,” the less return investors will get on money plowed into oil production. The less return on investment, the less investment there will be. Less investment equals less production, and less production equals higher prices. This is fact, not theory. Analysts at the Congressional Research Service report that the 1980 Crude Oil Windfall Profits tax reduced domestic oil production by 3-6 percent and increased oil imports by 8-16 percent for exactly that reason.
Tags: Economy
