Economist: Ending Tax Relief for Oil Companies Could Drive up Deficit, Debt

Blocking oil companies’ ability to benefit from two key tax relief provisions could drive up the deficit and the national debt, according to a study released Tuesday by Louisiana State University professor Dr. Jospeh R. Mason (PDF).

The study, sponsored by the American Energy Alliance, focuses on two tax relief provisions: dual capacity (foreign tax credits) and the Section 199 deduction, currently available to nearly all American businesses. It concludes that while eliminating the availability of the provisions to oil companies would increase revenue by tens of billions in the short term, it would cost the country hundreds of billions in economic output, provoke about 155,000 job losses (with consequent impacts on wages and employment-derived tax revenues), and ultimately result in a net fiscal loss of $53.5 billion in tax revenues.

“The administration’s proposal to eliminate tax deductions on U.S. oil and gas companies is grossly counterproductive toward the goal of increasing federal revenues,” said Dr. Mason in a statement. “Such a move would have a net negative impact on revenue, thereby increasing federal deficits.”

“If the goal is deficit reduction, a far more meaningful approach would be reforming federal tax and business policies that encourage economic growth. Expansion of oil and gas exploration and production on the Outer Continental Shelf, for example, would generate an estimated $11 billion annually in Federal tax revenue in the short run, and $55 billion annually in Federal tax revenue in the long run,” he added.

Other experts have pointed to the need for tax reform eliminating credits and deductions like these to encompass a flattening and reduction of tax rates, as well as a shift to territorial taxation. Movement towards such a system is however unlikely to be substantially advanced in the context of the current debate about the debt ceiling and related debt/deficit-reduction measures.

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