There's much to like about the grand tax reform package recently unveiled by Rep. Dave Camp (R-Mich.). The plan would bring down rates on small businesses and repeal harmful taxes instituted by ObamaCare. With his proposal, Camp, chairman of the House Ways and Means Committee, would also help modernize the stagnant and antiquated tax code. Congress hasn't updated the code in any substantial way since 1986.
But Camp's scheme does have one glaring flaw. Its laudable attempt to streamline the code goes a step too far by axing some key provisions essential to economic growth and job creation.
For starters, Camp's proposal would eliminate the "Last-in, First-out" method as a means to calculate inventory cost. Many companies across industries whose inventory costs steadily increase -- including those in the oil and natural gas sector -- use this method to offset those expenses. Rising inventory costs affect the calculation of net profits.
Getting rid of Last-in, First-out would effectively raise rates for all the industries that use it. That leaves less capital for energy firms to invest in new development products and creating new jobs.
Camp's tax package would also eliminate the provision of the tax code that allows companies to expense certain manufacturing costs. Under the current system, the oil and gas industry is permitted to deduct only 6 percent of these expenses -- most industries can deduct 9 percent.
This manufacturing deduction helps to encourage domestic investments by making it more attractive for companies to build facilities and maintain operations at home. This spurs economic growth and creates jobs. Eliminating this vital cost recovery measure would halt this progress.
For years, Washington has looked at these tax provisions as a sort of cash cow: by eliminating the deductions afforded to the energy industry, lawmakers could claim huge "savings" on the federal books. But creating a tax increase by eliminating this sensible deduction would threaten one of the few sectors still engaged in robust job creation.
Indeed, the oil and natural gas industry now supports 9.2 million jobs in the United States. Between 2006 and 2011, despite a sluggish economy and rise in overall unemployment, the industry directly created nearly 120,000 jobs. It's no coincidence that states enjoying an energy boom, like the Dakotas, are also enjoying the best economies in the nation.
Targeting the energy industry for huge tax hikes could put up to 75,000 jobs at risk. Plus, it could lead to the loss of another 190,000 indirect jobs in the first year, and nearly 265,000 by the end of a decade. American families can't afford a hit like that, especially not now with our economic recovery still struggling to get off the ground.
Streamlining the tax code is a commendable goal -- but it needs to be done with a scalpel, not a hatchet. Camp should be commended for his efforts. But his package needs to be reworked. Lawmakers in Washington must ensure that lowering the tax rate does not compromise a key job creator like the energy industry.
Johnson is a senior fellow at the Taxpayers Protection Alliance, a nonprofit, nonpartisan organization dedicated to educating the public on the government's effects on the economy.