Points to New Studies Showing How Increased Taxes on U.S.-Based Energy Companies Would Jeopardize U.S. Jobs, Harm Global Competitiveness, and Weaken U.S. Energy Security
WASHINGTON, D.C.—In light of new studies detailing the detrimental impacts of proposed new energy taxes, Karen Harbert, president and CEO of the U.S. Chamber of Commerce’s Institute for 21st Century Energy, today called on the Obama Administration and Members of Congress to abandon proposed new energy taxes on the U.S. energy sector. Such proposals, such as President Obama’s FY2011 budget which contains more than $38 billion in new taxes on the oil and gas industry, would put millions of jobs at risk, reduce domestic economic activity, and jeopardize U.S. energy security interests.
As evidence of such impacts, Harbert cited two new reports as well as the Energy Institute’s own analysis released last year. These include Fiscal Fitness: How Taxes at Home Help Determine Competitiveness Abroad, authored by Dr. Daniel Yergin and Mr. David Hobbs of IHS CERA, which found that the current U.S. tax structure and new tax proposals would put U.S. companies at a competitive disadvantage in the global energy markets, and Economic and Foreign Policy Implications of the Administration’s “Dual Capacity Taxpayer Proposals, a report by Pamela Olson and Brian Jenn of Skadden, Arps, Slate, Meagher & Flom, LLP and Grant Aldonas of Split Rock International, Inc., which found that the administration’s new tax proposals would subject U.S. companies only to double taxation on their existing long-term investments, rendering many foreign investments unprofitable and compromising U.S. interests. In addition, the Energy Institute’s Taxing Our Way to Energy Insecurity Again reviews the historical impact of higher energy taxes.
“The American people should be on high alert that the Obama Administration and Congress are trying to raise their energy costs,” Harbert said. “Higher energy taxes will have unintended consequences on economic activity and will not be borne by energy companies alone. Take together, these studies validate the Chamber’s warning that higher taxes will further threaten the ability of our economy to recover and our companies to compete around the world. Changing laws which have been on the books for decades as a political ploy to address the deficit will be ineffective and drive up energy costs, advantage foreign competitors and place our energy security at risk.”
IHS CERA’s report compared the “home tax rates” of ten different countries and found that the U.S. tax system makes U.S. based companies less competitive in the international arena, and that new proposals would make the United States the worst home base for overseas upstream oil and natural gas investment, behind India. It observes that if U.S. companies are unable to invest competitively, then companies based in other nations will be handed a significant competitive edge in attempts to secure more energy assets and mineral rights around the globe.
“The competitive landscape in the oil and gas industry is changing, and what we have observed through the data is the relative diminishment of U.S. companies,” IHS CERA Chairman Dr. Daniel Yergin said. “Taxation systems don’t exist in a vacuum an increasingly-competitive world. The unintended consequences of proposed changes would likely accelerate the shrinking position of U.S. companies internationally, which would be bad both for the U.S. economy and for energy security.”
In their study, which was done with Deloitte, IHS CERA built an extensive new Integrated Fiscal Database, on international taxation and developed a new benchmark for analyzing the competitive positions of different countries. “To understand the fiscal competitiveness of companies, you have to consider not only the fiscal terms in the country where oil and gas are being developed, but also the fiscal terms in the home country of the company,” said David Hobbs, IHS CERA Chief Energy Strategist. “This new analysis helps explain why the share of investment by U.S. companies is declining. The costs of repatriating income from international operations back to the United States are higher for U.S. companies than what many of their chief competitors face when repatriating income back to their respective countries.”
In the report prepared by Skadden, Arps, Slate, Meagher & Flom, LLP, Pam Olson, a former assistant secretary of Tax Policy at the U.S. Department of Treasury, addressed the potential tax implications of President Obama’s proposed FY 2011 budget. Specifically, Olson pointed to the discriminatory and damaging nature of the proposal to deny credits for foreign taxes paid under the so-called “dual capacity” provisions.
“There is simply no policy justification for the proposed change to the dual capacity taxpayer rules in the tax code. It would put U.S. companies at a significant disadvantage to their foreign competitors,” Olson said. “To maintain competitiveness, the home country is obligated to provide a tax credit to companies doing business in the global marketplace to ensure their income is not subject to double-taxation.” In addition, Olson pointed out that the new proposals would erode what have been fundamental principles of U.S. tax policy since the beginning of the twentieth century and that the results would damage the competitiveness of the United States. She commented that these proposals are based upon a lack of understanding of tax policies in other countries and of the long-recognized difference between “royalties” and “taxes”.
Dr. Yergin added that “tax confusion” is evident in a failing to differentiate between royalties and taxes and noted that sections of his book, The Prize: the Epic Quest for Oil, Money, and Power that deals with this issue are quite clear on this, contrary to some citations of the book.
The mission of the U.S. Chamber of Commerce's Institute for 21st Century Energy is to unify policymakers, regulators, business leaders, and the American public behind a common sense energy strategy to help keep America secure, prosperous, and clean. Through policy development, education, and advocacy, the Institute is building support for meaningful action at the local, state, national, and international levels.
The U.S. Chamber of Commerce is the world’s largest business federation representing the interests of more than 3 million businesses of all sizes, sectors, and regions, as well as state and local chambers and industry associations.
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