When asked during the final presidential debate if he’d “close down the oil industry,” Vice President Joe Biden initially responded that he would “transition from the oil industry” but soon clarified that he meant “getting rid of the subsidies for fossil fuels” and his campaign specified he meant “ending oil subsidies.” While Biden’s quick clean up indicates he understands how important the natural gas and oil industry is to America, it also reveals a misunderstanding about how the tax code treats the industry. To help clear up the confusion, here are five things to know about how tax policy treats the natural gas and oil industry.
- Don’t Believe The Hype – Natural gas and oil companies receive no special tax treatment from the federal government. Like any other industry or household, natural gas and oil companies may qualify for tax deductions or incentives. Deductions are not a give-away but a common mechanism that allows businesses to grow, invest and create jobs, and many industries including manufacturing claim similar tax deductions. Not only that, but many tax deductions that benefit natural gas and oil companies also benefit other industries so punitive tax measures against natural gas and oil would ripple across the struggling U.S. economy.
- The Industry Already Pays A Substantial Amount In Federal Taxes – Our industry already contributes tens of millions of dollars a day on average to the federal government in taxes, rents and royalties. Between 2013 and 2017, the oil and natural gas industry paid an effective tax rate of 34 percent versus 26.7 percent for the S&P 500 industrials. Just on federal lands and waters – where Biden wants to ban new development – America’s natural gas and oil industry generated $11.69 billion in federal tax revenues that were disbursed to back to the states, counties, tribes and reclamation and conservation programs. Additionally, according to IRS statistics, natural gas and oil companies bring back on average over $100 billion a year from foreign operations, leading all other industries and in some years this is well over one-third of all corporate repatriated income.
- And Then There’s State Taxes – Not only does our industry pay our fair share in federal taxes and royalties, but natural gas and oil companies pay a substantial amount of money in state revenues as well. These are vital tax revenue streams in many states that help fund the state’s education system, build roads, and improve healthcare facilities. In fact, 35% of the New Mexico’s tax revenue came from activity related to the natural gas and oil industry in FY2019 when including both federal and state rents/royalties the state receives, and New Mexico’s governor cited natural gas and oil tax revenue as the reason the state could afford to launch free college tuition for its state’s residents. In Texas, the natural gas and oil industry generated $16.3 billion in state taxes and royalties in 2019 – more than $44 million per day. To put it another way, the amount the industry paid in state taxes and royalties in just one state was greater than the GDP of 81 different countries/territories in 2019.
- These Aren’t The Tax Beneficiaries You’re Looking For – Much ado is made about tax policy benefiting natural gas and oil companies by those pushing a political agenda that penalizes one industry and provides taxpayer subsidies to another, but the reality is that energy tax policy is already disproportionally tilted towards benefiting renewables. According to the Congressional Research Service, 65% of all federal energy-related tax incentives benefitted renewables in 2017 even though just 13% of all U.S. energy production came from renewables. While the CRS report did not breakdown natural gas and oil specifically, it did note that 78% of all U.S. energy production came from fossil fuels in 2017 while just 26% of all federal energy-related tax incentives benefitted fossil fuels.
- The U.S. Tax Code Incentivizes Investing In America, And Our Industry Delivered – Between 2012 and 2016, America’s natural gas and oil industry spent an average of $227 billion investing in America’s infrastructure annually. On average, the oil and natural gas industry accounted for almost 16 percent of all industries U.S. capital expenditures during that period, more than the utilities and transportation industries combined. The natural gas and oil industry used tax policies incentivizing investment – the same or similar to those used by other businesses – to spur America’s energy renaissance, foster an industry that supports over ten million American jobs, and harness a domestic supply of affordable energy that benefits America’s economy, consumers, and national security. The demagoguery against our industry for accomplishing this American achievement is born out of political expedience rather than a desire for good public policy.
The natural gas and oil industry supports commonsense tax provisions that maintain the sector’s competitiveness and regulatory approaches that foster private-sector innovation. U.S. energy leadership is a product of American ingenuity and resilient workers – not federal mandates or government bailouts. If policymakers want to generate more tax receipts for the government, they should implement additional pro-development energy policies that foster increased economic activity.