Production, not taxes, will ease fuel price spikes

By cleverly referring to legitimate tax deductions as “subsidies,” the President has reignited a debate over a false choice: specifically, eliminating longstanding “dual capacity” tax provisions intended to ensure U.S. oil and gas companies are not the only energy firms facing double taxation on foreign income.
 
Even the Speaker of the House John Boeher (R-Ohio) recently joined in the confusing din, saying oil and gas “subsidies” deserve attention, although this deduction in no way resembles a subsidy.
 
Ideally, the entire U.S. corporate tax system would be restructured to eliminate the antiquated “worldwide income” approach that hurts our competitiveness abroad. But unless wholesale reform happens, repealing dual capacity protections would make the U.S. the only OECD country that both taxes foreign income and refuses to allow the deduction of foreign taxes when calculating domestic taxes. This creates a distinct advantage for state-run companies in China, Russia and Venezuela in the global pursuit of energy resources.
 
Decreasing prices on a commodity comes by increasing its supply or reducing its demand.
 
The government predicts that U.S. energy demand will grow 9 percent over the next two decades, with oil and gas supporting 55 percent of the needed energy. If demand is not going down, the only way to reduce gas prices is to increase supply.
 
House Republicans like Speaker Boehner and Majority Leader Eric Cantor (R-Va.) – plus more than a few of their colleagues across the aisle – know this, and are seeking legislation to increase access to domestic resources. They’re also considering a more promising approach to alternative energy – “reverse auctions” that provide limited federal support based on a given technology’s practical ability to produce affordable power.
 
But the President has other plans, which directly contradict what the market requires. The drilling moratorium in the Gulf of Mexico cut regional production by one-third, and the cancellation of new exploration in the Outer Continental Shelf has locked away 86 billion barrels of oil. Combine these restrictions with crippling energy taxes that make it impossible for our companies to compete abroad and an economic disaster is looming large.
 
Russia and China are aggressively moving to secure energy resources globally, spending government revenue to purchase them. U.S. firms can and should be able to match these moves without taxpayer backing; all it takes is for public officials to not stand in their way with punitive tax and regulatory policies.
 
We can only hope legislators won’t be fooled by early campaign-season rhetoric. Increasing taxes on oil and gas companies – a sector which already faces a 48.4 percent effective tax rate –will decrease production, leading to higher prices at the pump. Instead they should focus on ways to support increased energy production – the only proven way to lower energy prices.
 
Pete Sepp is executive vice president of the National Taxpayers Union.