Sen. Menendez plays same old song on energy taxation

Whenever tax reform is brought up in the Senate, Sen. Bob Menendez (D-N.J.) can be counted on to relaunch his punitive, anti-traditional energy industry tax proposal. If there was a legislative hall of shame, his legislation would be given top billing, having introduced virtually the same dishonest energy tax legislation this year as he did in 2015, 2013 and 2012.

Menendez claims that his legislation “would put an end to unfair taxpayer handouts to these highly-profitable companies.” Apparently, he said that with a straight face. But his target is just five oil companies, which clearly is a case of discrimination.

{mosads}In his legislative statement, he not-so-masterfully used alternative facts to assert that these companies — but apparently no other integrated oil firms —unnecessarily benefit from tax code provisions he wants to cut. But the reality is most of these provisions are available to virtually all companies and manufacturers, not just energy companies. 

He would eliminate the Foreign Tax Credit, which exists to avoid double taxation by providing a credit for foreign taxes paid on overseas income. He would deny these five companies the Domestic Manufacturer’s Deduction, available to all companies engaged in manufacturing, producing, growing or extraction in the United States.

This provision is already less for oil companies than other manufacturers. He would deny them cost recovery for tertiary injectants, which could lead to shutting down older fields. Ironically, companies use carbon dioxide in enhanced oil production, which reduces its release into the atmosphere, an objective the senator supports. 

He would deny these five companies Intangible Drilling Costs deductions, which are deductions for labor and related costs in drilling wells. These costs are no different than the operating expenses that all companies incur and deduct. 

If these proposed actions did not already reveal a shocking level of economic ignorance, Sen. Menendez would also deny these five companies the depletion allowance that they have been denied since 1975.

The failure of Sen. Menendez and his 21 cosponsors to understand the difference between subsidies — giving taxpayer money to the politically-favored — and normal business deductions may help explain the monstrous tax code that is hampering more robust economic growth and promoting crony capitalism. Sen. Menendez and his Democratic cosponsors always favor tax reform that results in more revenue to the government and the increased political power that comes with it.

If Menendez and his allies sincerely wish to repeal subsidies in the energy sector, they should redirect their sights at renewable energy companies that have been the biggest beneficiaries of political favoritism with tax preferences by far. The Congressional Budget Office found that renewable energy and energy efficiency accounted for approximately “three-fourths of the projected cost of tax preferences for energy in 2016.” This total accounted for $13.6 billion out of $18.4 billion in 2016.

Worse, the renewables sector is far less efficient with regard to output. In recent congressional testimony, Robert Murray, of the Institute for Energy Research, cited Energy Information Administration data highlighting that “on a per-megawatt-hour basis, in FY 2013, solar received $231 of support and wind received $35, while natural gas and petroleum received 67 cents and coal received 57 cents.” 

Groucho Marx was right when he said that politicians look for problems, find them everywhere, misdiagnose them and apply the wrong solutions.

Since the Great Recession, economic growth has been generally stagnant. Instead of focusing on policies that would lead to the robust growth of past decades, Sen. Menendez and his colleagues want to punish success. The oil and gas industry has been a leading contributor to our economy.

According to a new PriceWaterhouse Coopers study, the industry provided 10.3 million jobs as of 2015. In addition, the study found that capital investment by the energy sector “supports an additional 2.3 million jobs and $134 billion of labor income.” 

Attempting to punish success collectively reveals a personal vendetta and pandering to an environmental base that is promoting wrong-headed energy policy. Picking and choosing which companies we deny or allow standard business deductions based upon a clear political agenda is just bad leadership and the senator’s intention is likely to harm competitors of his New Jersey benefactors. 

What we need in tax reform is a level playing field for all; not the heavy hand of politicians tipping the scales to favor crony capitalists.

William O’Keefe is the founder and president of Solutions Consulting, a firm that specializes in strategic counseling in public policy and management. He formerly served as CEO of the George C. Marshall Institute and as executive vice president and CEO of the American Petroleum Institute.

The views expressed by contributors are their own and not the views of The Hill.