Free Markets, Free People
The other day I was on a conference call with representatives of ExxonMobil as they tried to explain why the upcoming attempt to remove certain tax breaks was a bad idea. I was struck by a statement one of the representatives made:
The thing that tends to get lost is we’re the home team here. And you have two – if the government is looking, U.S. government is looking to raise revenue and they’re looking at our industry, they really have – it’s coming down to two choices, it appears. They’re looking at, right now, singularly focused on increasing tax, our taxes, as a way to increase revenue coming into the government. But study after study show that if you increase access, increase business opportunity for our industry, give us access to more resources to go explore and develop, give equal treatment to downstream investments, that by increasing access, you will increase revenue.
And by – and you will increase revenue by magnitudes more than by focusing just on raising taxes. And by giving us – the industry more opportunity to explore, develop, refine, what have you, that increases jobs. And jobs increases overall social welfare. [emphasis mine]
ExxonMobil employs about 84,000 people directly world wide (the oil industry in the US, both directly and indirectly is responsible for over 9 million jobs). In the US, that part of the total is 35,000. Now imagine if, instead of doing everything in their power to stand in ExxonMobil’s way, the government actually did what the ExxonMobil representative lays out? The result would be as he concludes – more jobs, more revenue for government, and more opportunities in the works for both in the near future. Right here.
Instead of that, however, we see government doing everything in its power to hurt the “home team”. I asked, given the situation here and the fact that ExxonMobil derives much of its income from outside the US (~75%), whether the sort of shenanigans now being attempted by Congress and the administration would have an effect on corporate planning:
Well, we approach our investments on a global basis, and obviously it’s – the money that we’re investing is our – it’s money – it’s not our money; it’s our shareholders’ money. And we’re looking to make investments that are safe; they are going to make consistent returns over a long period of time, given the nature of our business; and obviously, government policy and the consistency of government policy is an important criteria for us as we look at projects that are competing for our investment dollars around the world.
So to the extent that United States policy makes an investment, for example, in a U.S.refinery less attractive than an investment in a similar operation outside the United States, is that something we will consider? The answer’s yes, of course we’ll consider it.
You can’t ask for a clearer answer. What is it the Democrats in Congress are doing? Well they’re playing politics with American jobs. In essence they’re trying to repeal tax breaks , but only for the oil industry. Specifically (thanks Neo):
Intangible Drilling Costs – Companies which engage purely in energy exploration and discovery can recover their costs related to exploration at tax time at a rate of 100%. This lessens the burden on energy providers for the number of “dry holes” which may be found in the process. Integrated companies (i.e. “big oil”) can recover these exploration costs at 70%.
Domestic Manufacturer’s Deduction (Section 199) – A deduction (not a credit) equal to 9% of income earned from manufacturing, producing, growing or extracting in the United States, is available to every single taxpayer who qualifies in the U.S. The oil and gas industry, and only the oil and gas industry, is limited to a 6% deduction.
Percentage Depletion – The percentage depletion deduction is a cost recovery method that allows taxpayers to recover their lease investment in a mineral interest through a percentage of gross income from a well. This depletion method is not available to companies that produce oil as well as refine and market it (i.e. “Big Oil”.) This is available to all extractive industries (gold, iron, clay, etc) in the US and is in no way unique to the oil and gas industry.
Note that none of these are “subsidies”, nor (other than intangible drilling costs) are they unique only to the oil industry (although the oil industry is the only industry that is limited in the Section 199 deductions). We hear Democrats whine constantly about the loss of manufacturing jobs, yet here they are pushing for tax changes that will likely kill good high paying manufacturing jobs in a critical industry. Not only that, but as API’s chief economist, John Felmy points out they will also hurt our economy in other areas and possibly lessen our energy security by driving future jobs off shore:
[T]he more we invest here, the more we produce, the more we have improved energy security and, really importantly, it reduces he trade deficit. And for every reduction in the trade deficit means that’s dollars that aren’t lowing abroad and can be spent here, and adds further to the U.S. economy that we desperately need.
Those are extremely important points, points that are being virtually ignored by the Democrats and the administration in this headlong rush to “punish” big oil for “excess profits” and more importantly, as a means of taking the political heat off themselves and their absurd and self-defeating economic policies. Somehow, one assumes, they believe that if they tax the oil industry more, then gas will cost less – go figure.
Read the transcript of the call I’ve linked above. Check the numbers out. It is eye-opening.
And the oil business isn’t the only target of such nonsense. Jim McNerney, CEO of Boeing, covers the NLRB/Boeing debacle in today’s WSJ – something I pointed out a week or so ago. The National Labor Relations Board (NLRB) has gone to war against another home team – Boeing. Here’s a company doing precisely what you’d expect the administration would applaud if they at all believed their rhetoric about “jobs, jobs, jobs”:
Deep into the recent recession, Boeing decided to invest more than $1 billion in a new factory in South Carolina. Surging global demand for our innovative, new 787 Dreamliner exceeded what we could build on one production line and we needed to open another.
This was good news for Boeing and for the economy. The new jetliner assembly plant would be the first one built in the U.S. in 40 years. It would create new American jobs at a time when most employers are hunkered down. It would expand the domestic footprint of the nation’s leading exporter and make it more competitive against emerging plane makers from China, Russia and elsewhere. And it would bring hope to a state burdened by double-digit unemployment—with the construction phase alone estimated to create more than 9,000 total jobs.
Eighteen months later, a North Charleston swamp has been transformed into a state-of-the-art, green-energy powered, 1.2 million square-foot airplane assembly plant. One thousand new workers are hired and being trained to start building planes in July.
It is an American industrial success story by every measure. With 9% unemployment nationwide, we need more of them—and soon.
Pretty hard not to agree with that, right? And, the administration and Democrats have told the America people repeatedly that their focus is on jobs. But in the example above about the oil industry and this example about Boeing, the rhetoric does not come close to supporting reality In reality, they’re at war with the job creators:
Yet the National Labor Relations Board (NLRB) believes it was a mistake and that our actions were unlawful. It claims we improperly transferred existing work, and that our decision reflected "animus" and constituted "retaliation" against union-represented employees in Washington state. Its remedy: Reverse course, Boeing, and build the assembly line where we tell you to build it.
And, as with ExxonMobil, the government’s actions have consequences that it either doesn’t understand or doesn’t care about. McNerney lays them out for you in the cold light of economic reality and, as you’ll note, it’s not much different than ExxonMobil’s answer:
The world the NLRB wants to create with its complaint would effectively prevent all companies from placing new plants in right-to-work states if they have existing plants in unionized states. But as an unintended consequence, forward-thinking CEOs also would be reluctant to place new plants in unionized states—lest they be forever restricted from placing future plants elsewhere across the country.
U.S. tax and regulatory policies already make it more attractive for many companies to build new manufacturing capacity overseas. That’s something the administration has said it wants to change and is taking steps to address. It appears that message hasn’t made it to the front offices of the NLRB.
We are in some dire economic times right now, and we have an activist government that is saying one thing but doing another. It is telling us how critical jobs are to our economy on the one hand while, in two very important examples, doing everything in their power to discourage large American companies from creating them.
This is nothing more than political payback and cronyism. At risk are the lives and livelihoods of thousands of Americans, put at risk to satisfy a political agenda. The oil industry is not a favored industry of the left, so the administration and Democrats are doing their level best to drive it off, just when untold amounts of new fossil energy has been discovered (shale). Boeing, on the other hand, isn’t serving a favored constituency as the administration and Democrats would prefer. So they have attacked that company as well.
Both are extraordinarily bad precedents and symptomatic of a toxic political atmosphere in which the administration and Democrats are engaged in trying to pick winners and losers. They are also engaged in serving favored constituencies rather than doing all that is necessary to encourage and invite domestic American industries (the home team) to create jobs. Their actions border on the criminal and are inexcusable – especially in these tough economic times when Americans are suffering from the economic downturn.
These are actions that by government that must be stopped and stopped now. And Democrats need to be put on notice that their ploy to punish the oil industry is transparent partisan politics and wholly unacceptable to the American people.