Obama's jobs bill hurts Montana energy industry
The president's "second stimulus" jobs bill and deficit reduction plan both include measures to increase taxes on domestic oil and gas production, which by extension will penalize consumers, workers and shareholders. The administration's continued pursuit of these controversial tax increases — which have been routinely rejected by Congress — amounts to simple political posturing. But the economic fallout is even less appealing.
In 2009, President Barack Obama stood before Congress to present his first $787 billion stimulus package. His economic team originally projected that the plan could potentially save or create between 3 and 4 million jobs, and as a result the unemployment rate might peak at 8 percent. Much to the administration's chagrin, those forecasts fell short. Two years later, Montana unemployment is hovering above 7 percent, and the national employment rate is stuck at 9.1 percent.
Despite these difficulties, there are still reasons for optimism, though it won't be found in another government spending program. For instance, the Bureau of Labor Statistics reports that since December 2007 (the official beginning of the most recent recession), the total number of seasonally-adjusted jobs in the U.S. has fallen by about five percent. However, jobs involved with oil and gas extraction have risen during that same period by over 15 percent. These opportunities have been facilitated by new drilling technologies, which have enabled companies to responsibly explore the country's vast fossil fuel resources.
Clearly, the president's stimulus plan, health care bill, and multitude of new financial regulations have failed to address everyday Americans' economic concerns, leaving him with an approval rating of just over 40 percent. Furthermore, his "green" base is left questioning his commitment to their environmental agenda due to his inability to follow through on the campaign promise of an economy-wide cap-and-trade scheme, and his most recent move to pull back on new ozone regulations whose cost the EPA itself pegged at $2 billion to $90 billion.
Perhaps to make it up to this voting bloc, the president has decided to renew his attack on traditional energy sources. But the effects will only further burden those struggling with financial uncertainty.
In the president's sights are the dual capacity exemption and section 199 manufacturing deduction. Dual capacity boosts American competitiveness in the global marketplace by ensuring U.S. companies are not taxed on income once abroad and again domestically; section 199 is a job creation deduction that goes beyond the oil and gas industry (which supports 9 million jobs overall today). Though wholesale reform is a better option, these provisions at least help to compensate for the U.S. Tax Code's shortcomings, and eliminating them would cost Montana over 1,100 jobs next year.
This is a sobering conclusion of a study from Louisiana State University Professor Joseph Mason that uses standard government economic modeling. The analysis also indicates that these changes would decrease economic output in Montana by $331 million.
Even though the tax shakedown would only be aimed at certain oil and gas companies, the damage would spread beyond the energy business.
Because domestic energy firms are integrated into the larger economy, requiring services and parts like any other company, the losses would hurt many sectors; manufacturing, retail trade, finance and insurance, educational services, health care and even social assistance would all be affected. Ironically, governments themselves could take a financial hit over the long run. At the federal level, far from adding to funds to address the debt, net taxes, payments, and fees collected could fall by over $53 billion due to the slowdown in industry activity and reduced employment. Through 2020, state and local tax revenue would decrease by $29.3 million.
These debilitating setbacks may be slightly mitigated by other portions of the president's "Stimulus II" plan (such as extended tax reductions), but they are at best modest, temporary measures. Ballooning regulatory costs, a high corporate tax rate and the constant threat of punitive tax treatment have left many businesses reluctant to hire.
Yet, opportunities abound. If the president would embrace developing the oil and gas-based energy we need, there are over 1.4 million new jobs to be had, according to a recent Wood Mackenzie study. Tax reform, regulatory restraint, and a rollback in federal borrowing would help as well. Montana lawmaker Max Baucus sits on the recently created "Super Committee" charged with deficit reduction recommendations, and hopefully he realizes that job growth, not job-killing oil and gas tax increases, will beat the recession in Montana.
(Pete Sepp serves as executive vice president of the National Taxpayers Union.)