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Guest Commentary: Cutting Tax Breaks Means Higher Prices

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Burdening suppliers will do anything but encourage them to expand operations

The all too familiar rhetoric and political posturing is taking place on Capitol Hill in response to rising oil and gasoline prices. On Thursday, Senate Democrats summoned CEOs from a number of major oil companies to discuss their growing profits and question whether they still required certain federal tax breaks and deductions for drilling, exploration, and production operations.

Corporate executives from ExxonMobil, ConocoPhillips, BP, and Shell attended the hearing where they faced a barrage of accusations from Senate Democrats.

Sen. Robert Menendez (D-N.J.) authored a bill that would repeal vital tax breaks that America’s oil and gas companies utilize to ensure the affordable production of domestic energy. Sen. Menendez claimed, “It’s time for the big five oil companies to give up these subsidies and allow their companies to pay a fair share towards reducing the deficit.” Sen. Richard Blumenthal (D-Conn.) commented, “They ought to be making profits fairly, not with the kind of giveaways that they are receiving now.”

In response to the Democrats’ tax proposal, Exxon Mobil CEO Rex Tillerson said that it “would discourage future investment in energy projects in the United States and, therefore, undercut job creation and economic growth.”

CEO of Chevron, John Watson, made the case that the U.S. oil and gas industry already pays its fair share in taxes. He noted that companies do not acquire subsidies but benefit from “long-standing oil and gas provisions in the tax code (that) parallel tax treatment of other industries are designed to prevent double taxation.”

Democratic leaders in Washington are misguiding the public by identifying these tax breaks and deductions as subsidies. It’s their intention to create the perception that the U.S. taxpayer is in someway footing the bill for the industry. The simple fact is that these tax breaks and deductions are key components to keeping the cost of operations down and essentially ensuring lower energy prices.

Democratic leaders aren’t telling the public that the end result of removing oil and gas tax breaks is to ensure subsidies for another industry. These same leaders calling for the end of these tax breaks intend on turning around and subsidizing the renewable energy market. Today, companies operating in the solar energy industry receive direct subsidies from the federal government that equate to nearly 80% of their required start-up capital.

Additionally, leaders in Washington may need to revisit the simple basics of economics. Oil companies reinvest tax breaks into exploration and production, which ultimately generates more tax dollars and increases the production and supply of oil. Eliminating tax breaks would raise the cost of doing business and lead to higher prices.

In response to the proposal, U.S. Senator David Vitter (R-La.) noted, “This is a pretty interesting approach to decreasing the price at the pump since two of the most basic rules of economics are that corporations don’t pay taxes, people do, and that if you tax an activity, you’re going to get less of it, not more.’

What the public wants to know is, “Why are oil prices so high?” The answer is that the declining U.S. dollar, rising demand in global markets, and political instability at home and abroad are the results of rising oil prices. Instead of lambasting U.S. oil companies, leaders in Washington may want to look in the mirror. There they will find who is actually the culprit for skyrocketing energy prices.

Don Briggs is president of the Louisiana Oil and Gas Association.

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