Our country needs its robust energy economy to continue growing. Without it, the United States diminishes a dynamic industry that, instead of laying off workers in the midst of the recession, actually managed to create tens of thousands of well-paying jobs right here at home. Eliminating certain oil and gas tax provisions, which are often misleadingly presented as "subsidies," would compromise the industry's ability to add even more jobs and boost economic growth. It would also be counterproductive and risk bringing our emerging U.S. energy renaissance to a grinding halt.
That renaissance today enables oil and gas firms to support more than 9.2 million American workers. These workers have high paying jobs, with an average salary, except for gas station workers, of $93,000, which is way above the average private sector wage. Furthermore, when the economy shed some 4.5 million jobs between 2006 and 2011, the energy industry actually added 120,000 new jobs. And it added thousands more last year.
In Mississippi, we know about the benefits of a strong energy economy. In 2011, our state was ranked by the Fraser Institute of Canada as the number one place in the world for energy investment. In 2012, we were number two. Mississippi is able to compete with the rest of the world for energy investments because we have a clear tax and regulatory landscape that isn’t overly burdensome for companies looking to create jobs and lower prices for quality consumer products.
Why should Mississippi or the U.S. government, for that matter, want to punish an industry that has managed to thrive despite the deep recession and this dismal recovery?
And let’s not forget the unmentioned consequences of these higher taxes for American families. The natural gas boom, for instance, is driving a manufacturing rebirth in this country that is putting more money in consumers’ pockets. According to an IHS Global Insight Analysis released in 2011, savings from cheap natural gas combined with lower prices for consumer goods that are manufactured with natural gas will add more than $900 in disposable income per household annually between 2012 and 2015. By 2035, that figure is predicted to rise to $2,000 per household each year.
Still, some members of Congress continue to naively champion the idea that if oil companies would only pay their fair share in taxes, our looming fiscal problems would be solved. But what is their fair share? Is a 44.3 percent effective tax rate fair? Because that’s what oil and gas companies paid on average in federal taxes from 2006-2011 while other industries and firms on the S&P 500 paid much lower effective rates. Health care service providers, according to Standard & Poor’s Research Insight, paid a rate of 35.1 percent in taxes; pharmaceuticals paid 24.2 percent; and industrial conglomerates paid a 15.8 percent tax rate.
The oil and gas industry is already the highest-taxed industrial sector in the country, pumping about $86 million a day of taxes and fees into federal coffers. That’s $31 billion annually. A completely arbitrary tax hike on the energy industry would not only reduce industry growth, it would squelch job creation and pass higher energy costs along to consumers.
Moreover, lost in all this talk about making oil companies “pay their fair share” i.e., more than 44.3 percent of net income, is the fact that the stronger our energy industry, the less we have to depend on buying foreign oil from places that are unstable or unfriendly to us. For forty years energy security has been a goal of every U.S. administration, regardless of party. We are at the dawn of North American energy independence, but a vital U.S. energy economy is essential to achieving that potential.
Washington faces an enormously difficult challenge in getting its financial house in order, but doing it on the backs of the energy industry would make us less likely to achieve energy independence, a strong middle class, more jobs, and a stronger economy.
Slapping the energy industry with higher taxes would be a step in the wrong direction. It wouldn’t help our country’s fiscal mess, but it would reduce economic growth, job creation, and North American energy security while increasing not only the cost of energy but also the prices of the vast number of products that have an energy cost component. If we let it, the U.S. energy industry will drive our country toward the kind of economic recovery we so desperately need. Let’s not derail that potential now with billions of dollars in harmful tax hikes.
Barbour is the founding partner of BGR Group and former governor of Mississippi.