The U.S. Bureau of Economic Analysis recently released a second estimate on the nation’s fourth quarter gross domestic product (GDP) growth, revising it from its initial January 29th announcement of 0.7 percent to a whopping 1.0 percent. Consider me unimpressed. A 1.0 percent growth is dismal compared to the fact that we should be growing at better than 4 percent during a solid recovery/expansion period.
Given our continued anemic growth, one would think President Obama would release a budget that would provide substantive, pro-growth tax relief and rein in government spending. Unfortunately, the fiscal year 2017 budget plan, released last month, accomplishes neither, instead, hiking spending and tossing in broad new tax hikes to boot. Garnering the most attention is the proposed $10.25 per barrel oil tax that would raise an estimated $319 billion to fund clean transportation projects. And like the president’s past budgets, this one would also eliminate certain tax deductions, but only for the oil and gas industry.
While those who are supportive of the president’s oil barrel tax might somehow think they are helping the American consumer, in reality, it is those very consumers who will pay the price in the form of higher energy costs, gas prices and lost jobs. Not to mention, that despite claims to the contrary, it isn’t only large energy companies who will feel the pinch of these policies.
The U.S. energy industry is largely populated by small businesses. For example, as the Small Business and Entrepreneurship Council has noted previously, 90.7 percent of employer firms among oil and gas extraction businesses, 78.1 percent of drilling oil and gas wells businesses, 81.5 percent of firms among support activities for oil and gas operations businesses, 60.5 percent of oil and gas pipeline and related structures construction businesses, and 54.7 percent of firms among oil and gas field machinery and equipment manufacturing businesses have less than 20 workers. The energy business very much is about small business.
The proposed eight tax deductions the budget would repeal for the oil and gas industry clearly would hurt small businesses in the energy industry. Some of these deductions, by the way, are taken by virtually all companies in the S&P 500. To repeal standard deductions for industries that help lead the economy, while also providing subsidies to politically-favored, economically-dubious undertakings, such as solar and wind power, makes no economic sense. It’s politics winning out over sound economic policy.
Small businesses – in the energy sector and beyond - are key to innovation, growth and job creation in the United States. Imposing a massive new tax on U.S. oil production – estimated to raise the price of a gallon of gas by 25 cents - while taking away key tax deductions will only serve to increase costs for businesses and consumers alike, and diminish innovation and growth.
This brings us back to the problem of the nation’s economic growth. It’s clear that an oil tax is not the solution. In fact, the nonpartisan Congressional Research Service found that “in general, the fee would likely result in decreased discretionary consumer purchasing power which may translate into lower expected economic growth.”
Far too often, our lawmakers fail to take into consideration the impact that public policy has on markets and the economy. Increased costs through government regulation and taxation matter greatly to entrepreneurs, businesses, investors, job seekers, consumers, and the economy. And in fact, the economy suffered accordingly through one of the worst, most protracted recessions since the Great Depression and one of the worst recoveries on record.
The budget is an opportunity to lay out a path forward for America’s economic future. Unfortunately, Obama missed that opportunity and doubled down on policies that will guide us down the wrong path.
Keating is chief economist for the Small Business & Entrepreneurship Council.