After months of sitting on the sidelines, President Obama has injected himself into debt limit talks. Unfortunately, the president’s proposals are anything but novel—tax increases on oil and natural gas companies—and are unlikely to break the current impasse. Tax hikes are a non-starter for Republicans—the GOP has no interest in helping Obama fund his over-sized government that now consumes 25 percent of GDP.
Just a thought experiment, is raising oil and natural gas companies taxes a good way to address the deficit? Obama seems to think so. After all, the president decries oil and natural gas companies every chance he gets. Like yesterday, when he said:
“What we have talked about is that starting in 2013, that we have gotten rid of some of these egregious loopholes that are benefiting corporate jet owners or oil companies at a time where they're making billions of dollars of profits. What we have said is as part of a broader package we should have revenues, and the best place to get those revenues are from folks like me who have been extraordinarily fortunate, and that millionaires and billionaires can afford to pay a little bit more.”
But that might not be the case. A recent study
by Louisiana State University finance processor, Joseph Mason, concludes that two of the president’s proposed tax hikes—repealing Sec 199 and amending the Dual Capacity foreign tax credit—in fact, exacerbate America’s ever increasing debt. While these tax hikes are projected to raise $29 billion over the next decade, they would actually cause a net loss of about $54 billion in tax revenues due to lost economic productivity.
Obama’s proposed tax increases would be devastating to the oil and natural gas industry which is responsible for over 9 million jobs in America. These two job killing tax increases alone would cost the U.S. $341 billion in economic output, 155,000 jobs and $68 billion in wages. After one takes a step back from Obama’s political rhetoric to actually look at the numbers, it is clear that Obama’s proposals are more about continuing his war on oil companies than reducing the debt.
In this instance, the tax policies Obama singles out as “loopholes” or “tax expenditures” are anything but; the government doesn’t spend a single penny helping oil companies produce oil. Under the 2004 Sec. 199 law, every domestic manufacturer is eligible to deduct 9 percent of their income—that is, every domestic manufacturer except oil and natural gas companies. Singling out oil companies, a Democrat controlled Congress limited the amount of income this industry can deduct to 6 percent.
Another one of Obama’s proposed tax increases is to amend the foreign tax credit for dual capacity taxpayers, in this case oil companies. Doing so would raise minimal amounts of revenue but force oil companies to pay higher tax rates than their international competitors by double taxing earnings. With deals like this, no wonder Republicans categorically reject tax hikes.
Since coming into office, Obama has increased federal spending by nearly a trillion dollars. The current mess we’re in has nothing to do with revenue and everything to do with overspending.
Republicans are using this debt ceiling to force the issue and demand spending cuts.
Obama is using it to raise taxes.