U.S. Energy Supply at Risk Under Tax Provisions in Senate Energy Bill Will Discourage Domestic Oil and Gas Production
Senate legislation intended to ensure national energy security for the coming decades will instead discourage new domestic oil and gas production and increase U.S. reliance on imported oil, according to the American Council for Capital Formation (ACCF). ACCF Senior Vice-President and Chief Economist Dr. Margo Thorning highlighted energy trends showing that, absent sharp changes in consumption and technological breakthroughs, fossil fuels will remain the global dominant source of energy through 2030. Rising oil and gas demand is projected to increase by 1.8% annually. Discouraging domestic production could accentuate vulnerability to a severe supply disruption and resulting price shock. Tax provisions in the Senate energy bill will do just that by increasing the costs for U.S. companies to obtain oil and produce refined petroleum products.
Strained U.S. energy supply will be exacerbated by continued population growth, which means increased demand for home heating and cooling, job growth and transportation. Congress should be finding a way to encourage more domestic energy production, not make it more costly as these provisions clearly do.
-Dr. Margo Thorning
Thorning pointed specifically to a provision in the current Senate energy bill, which would modify the domestic manufacturing deduction under Section 199 to repeal gross receipts from oil and natural gas. Such a repeal would have a significant tax impact on U.S. oil and gas producers, raising their taxes by $11 billion during a 10-year period according to the Joint Committee on Taxation.
The Senate energy bill also proposes to repeal Section 907, which gives foreign tax credits for U.S. energy companies for taxes they pay in foreign countries relating to upstream production and downstream processes. The Senate provision would combine these credits and lower credit limitations. U.S companies would be forced to pay higher taxes and lose competitive footing with foreign-owned companies in the global energy marketplace.
“The costs of these tax provisions will be high, not just for U.S. oil companies, but for consumers who will face higher energy costs due to dampened domestic supply and the millions of families whose incomes are derived from a U.S. industry that must compete in global energy markets for increasingly expensive crude oil.” Thorning said.