World bank weighs in on U.S. tax code, fossil fuel 'subsidies'

A newly leaked World Bank report calls on 24 OECD countries to boost tax burdens on their oil and gas sectors—eventually by as much as $40-$60 billion annually—in order to funnel part of the money raised to carbon-trading and other environmental concerns.
 
This would include the World Bank’s Clean Development Mechanism—a program that has even elicited howls of criticism from carbon-emission-trading supporters for not being sufficiently harsh on traditional energy sources. This effort precedes last year’s pledge by G20 countries, including the United States, to scrap so-called fossil fuel “subsidies.”
 
The World Bank should know better that politics and policy often clash when it comes to energy production, having come under fire itself last year when it provided $3.75 billion to finance a giant coal plant in South Africa. U.S. taxpayers also have legitimate questions over how many (or whether any) of their dollars should be sunk into multilateral lending institutions associated with the World Bank and International Monetary Fund. And while several developing nations do subsidize fuel consumption through price ceilings on everyday items like cooking oil and gasoline, OECD countries conversely tax oil and gas far more than they subsidize it.

 
For example, here in the U.S., several of the “special loopholes” some lawmakers are pushing to repeal for our traditional fuel industry actually consist of legitimate business deductions available to most sectors. To name one, the Section 199 domestic production activities deduction is claimed by many businesses—ranging from Hollywood movie producers to Midwest breweries to East Coast video game developers.
 
One of the primary provisions under attack is what’s known as “dual capacity,” a credit that protects U.S.-based oil and gas multinationals (as well as other industries) from double-taxation on income already taxed abroad. It offers some relief from a corporate tax system acknowledged to be one of the most burdensome in the industrialized world.
 
Far from a “subsidy”, this foreign tax credit enables U.S. companies to compete on a global scale against state-owned entities from China, Russia and elsewhere. Repealing dual capacity would not mean less global production of oil; rather, it would just shift the means of production from U.S. firms who would be saddled with another disadvantage, to nationalized oil companies operating under different standards. Already, China has gained a massive foothold in Africa’s extractive sectors, and with it significant non-economic concerns, an issue not lost on World Bank President Robert Zoellick.
 
So why, then, does the World Bank suggest developed countries eliminate these tax provisions? The (London) Guardian reports the document may provide a “template for action” at the U.N. climate talks and will likely be addressed by the G20 finance ministers meeting in November. But as record high food prices and volatile commodity markets continue to burden the world’s poor, one would think the World Bank has bigger issues to tackle than fundraising for its problematic emissions trading scheme.
 
Sepp serves as Executive Vice President for the 362,000-member National Taxpayers Union, a nonpartisan citizen group founded in 1969 to work for lower taxes and smaller government at all levels.

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