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Commentary

Tax Fairness Critical to Sustaining Growth of Energy Sector



The term subsidy was heard repeatedly during recent confirmation hearings for President Trump’s Energy secretary pick, former Texas Gov. Rick Perry. It wasn’t Perry, of course, who bandied the word about, but Sens. Bernie Sanders (I-Vt.) and Al Franken (D-Minn.). According to that pair of lawmakers, Perry should do everything in his power in his future capacity as Secretary of Energy to remove tax provisions taken advantage of by the energy sector.

Perry, as any nominee might, pledged to review all of DOE’s programs, to be a responsible steward of public dollars and ensure a level playing field for energy producers. It was a polite answer, given in the spirit of deference to the nomination process. Perry could have explained to Sanders and Franken that their assertions about so-called special breaks for the energy sector are dead wrong. Because they are.

The truth is that what the senators, along with other interest groups, often refer to as subsidies for the energy sector are really nothing more than customary tax deductions taken by virtually all U.S. manufacturers. The same kinds of tax deductions for legitimate business expenses are taken by both mom-and-pop businesses nationwide and Fortune 500 companies. After all, the Internal Revenue Code allows deductions so that indiividuals and companies are taxed only on income earned net of the cost of generating that income. Such provisions are consistent with generally accepted accounting practices and commonplace worldwide.

Sure, a soundbite that refers to “billions of dollars in tax subsidies” for Big Energy might move the needle in an us-versus-them political atmosphere rampant with ideological hyperbole, but it does little to move the dialogue about America energy forward in an honest way. Franken even had the temerity to conflate wind and solar power incentives, tantamount to cash giveaways, with the deduction of legitimate business expenses by small, family-owned energy production companies. Certainly the senator knows better.

For his part, President Donald Trump has made clear that spurring American energy production and pursuing comprehensive tax reform will be major goals of his administration. House Speaker Paul Ryan (R-Wis.) and House Ways and Means Committee Chairman Kevin Brady (R-Texas), too, have announced a tax reform plan that lowers the corporate tax rate and allows businesses to take full and immediate deductions for capital investments. Like most sensible Americans, those two men know that our nation grows when it encourages investment and eliminates what Adam Smith called “all systems of preference or restraint.”

The U.S. economy grows, too, when we fully unleash the power of abundant, inexpensive, and domestically available energy. The oil and gas sectors are engines of job growth, but also harbingers of broader economic health. That’s why the president signed executive orders supporting the advancement of the Keystone XL and Dakota Access pipelines during his first week in office. He has no appetite, as his predecessor did, for trying to stifle one category of energy producers so others can thrive. Instead, he is moving quickly toward projects that generate jobs and catalyze investment.

Unfortunately, some members of Congress continue to call for the repeal of tax deductions for the energy sector, encouraging measures that would suppress capital investment and throw cold water on the energy boom. They apparently believe that by punishing traditional sources of energy, such as oil and gas, they bring their vision of a solar- and wind-powered America one step closer to reality. And they know that at least some portion of the listening public has been conditioned by years of rhetoric to believe that sources of energy that come out of the ground should be treated differently than others, preferably with disdain and suspicion.

As President Trump works alongside Congress to make our nation’s tax code fairer and more predictable, it’s important that all industry sectors are treated equally. That means allowing energy companies, both large and small, to take the same standard deductions that all other businesses do. Whether a commercial enterprise operates wind turbines in Iowa or extracts oil in North Dakota, access to the same tax provisions means a chance to compete on a level playing field. As the likely leader of our nation’s chief energy agency, Mr. Perry has an important opportunity to help ensure that that principle remains the law. He ought to seize it.


William F. Shughart II is Research Director and Senior Fellow at the Independent Institute, J. Fish Smith Professor in Public Choice in the Jon M. Huntsman School of Business at Utah State University, and editor of the Independent Institute book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.


From William F. Shughart II
TAXING CHOICE: The Predatory Politics of Fiscal Discrimination
So-called “sin taxes”—the taxing of certain products, like alcohol and tobacco, that are deemed to be “politically incorrect”—have long been a favorite way for politicians to fund programs benefiting special interest groups. But this concept has been applied to such “sinful” products as soft drinks, margarine, telephone calls, airline tickets, and even fishing gear. What is the true record of this selective, often punitive, approach to taxation?







  • MyGovCost.org
  • FDAReview.org
  • OnPower.org
  • elindependent.org