Free Markets, Free People

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Rooting against the home team: Democrats and administration attack job creators

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.

~McQ

Twitter: @McQandO


About that oil spill (update)

If you’ve tried to imagine its size, there’s a site out there that will help you. And if that doesn’t put it in context enough for you, you can drop it on a map anywhere you’d like.

I dropped it on Washington DC.

Imagine something of that size in that area. Why there’d be a mobilizing of everything that could be mobilized trying to fight this thing and control it.

And of course there’s the “what will it do” question as in, once it gets into those loop currents around the keys, then what?

That particular test was run with dye within 20m of the surface. Don’t forget there’s a huge plume of oil well below the surface that is going to move as well.

Yes, some will disperse with time. Some will evaporate. But there’s still questions about that which is moving below the surface and how much of that will remain concentrated enough to have an effect. After all, the dye made it.

UPDATE: OK, my bad – the YouTube vid above is that of a model showing how the current flows and approximate time in days, for it to disperse. ScottH in comments brought it up and asked me to make it clear. Not sure how I ended up thinking it was real (oh, yeah, the dye reference). I sound like a global warmist. Anyway, this at least has some real data and some science behind it, however it is a model.

~McQ


Podcast for 10 May 09

In this podcast, Michael, and Dale discuss the county’s failing energy and economic policies.

The direct link to the podcast can be found here.

Observations

The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2007, they can be accessed through the RSS Archive Feed.


Proposed Taxes On Oil Producers Will Be Paid At The Pump

This is such a basic lesson I’m surprised it has to be repeated so often.  

The background:

Under pressure to narrow projected deficits, President Barack Obama’s 2010 budget proposal calls for raising more than $31 billion over the next decade by eliminating the oil and gas industry’s eligibility for various tax breaks.

When you’re thowing around 3.6 trillion dollar figures for budgets, someone is going to ask, “how are you going to pay for it?” A 3.6 trillion dollar budget certainly doesn’t answer, “by cutting spending” does it? So new sources of revenue have to be found. But in a consumer society who is the ultimate source of all revenue? If you answered, “the consumer” you get a gold star.

So revenue is the purported reason for the focus on oil companies. Additionally, they’re easy to demonize which makes for easy political pickings. That seems to be the modus operandi of this administration.
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The propsoal:

The plan would slap companies with a new excise tax on production in the Gulf of Mexico worth $5.3 billion between 2010 and 2019, and repeal the industry’s eligibility for a manufacturing tax credit worth $13.3 billion in that period.

In an era in which the word “trillions” is uttered with abandonment, billions suddenly don’t seem like much do they? Unless of course you’re a middle or lower income family. Then trillions and billions are meaningless. It’s how far can you stretch the thousands of dollars you earn each year?

Well that $13 a week tax cut you’re contemplating will quickly disappear at the gas pump if Congress and the adminstration get their way. Fuel prices will rise at the pump and may rise rather dramatically. That’s because that approximately 20 billion you see above will most likely morph into about 400 billion cost to the oil companies during that period:

The industry says the final cost of Mr. Obama’s proposals on petroleum production could top $400 billion, once his plan to put a price on greenhouse-gas emissions is factored in.

The lie:

The Obama administration has generally justified its proposals by arguing that taxpayers deserve a better deal.

Yeah, I know, “lie” is a strong word. I’ve always considered it to be the knowing telling of a falsehood. And that’s precisely what this “justification” is. The “taxpayer” being talked about isn’t you in this scenario. It’s the government. You will be paying the passed through tax at the pump which the oil companies will then send to DC.209546302_54daa93f9b

For the seeming millionth time, corporations don’t pay taxes, they collect them and pass them on. Individuals pay taxes.

Last but not least – Raising taxes in recessionary times (not matter how indirect) is a recipe for economic disaster. Additionally such taxes in recessionary times may have the effect of driving jobs offshore where taxes and restrictions are less onerous and seeing oil companies produce less oil and natural gas domestically in a time when there is a growing and increasingly worrisome energy gap.

Not a very bright policy.

~McQ