Oil and gas company stocks offer a healthy boost to pensions, American Petroleum Institute said today as it argued that higher taxes on the industry would hurt groups that include firefighters, police officers and teachers.
The influence group for oil and gas companies released a study that looked at the two biggest pension funds in Michigan, Missouri, Ohio and Pennsylvania. The analysis found that "oil and natural gas holdings make up an average of 4.0 percent of these funds but contribute an average of 10.4 percent to the funds' total gains from 2005 to 2009."
"Increasing taxes on the industries by billions of dollars a year while locking up many of the best domestic energy prospects will not help keep companies strong," said Kyle Isakower, API vice president of regulatory and economic policy. "These types of policies may well result in companies investing less, hiring less and earning less.
"That would hurt their financial performance and harm not just state pension funds and the Americans that depend on them, but the millions of others Americans who also own shares of these companies through mutual funds, IRAs and 401(k)s," Isakower said.
The study by Sonecon LLC, a firm that advises on market conditions and economic policy, examined the pension funds for teachers and other public school employees and the fund for state government employees in the four states. It found that returns on oil and natural gas assets averaged 46.5 percent, compared to 13 percent for all other assets.
API plans to show the study to Congress and the White House, the latest move in a push to fight off any change in tax benefits. President Obama has renewed his call to raise federal revenues by eliminating several tax advantages for the industry, which has seen some companies reaching record-setting profits in recent years.
Obama's statements come as Republicans call for greater budget austerity. For the past two years, a similar request from Obama has been ignored by both the GOP and some conservative Democrats. House Democrats, however, recently projected that ending several oil-company tax breaks would save $40 billion over five years (E&ENews PM, Feb. 10).
Both a watchdog group and an economist with a nonpartisan budget group called the API argument flawed.
"It's the most ridiculous argument I've ever heard to justify subsidies for an industry," said Steve Ellis, vice president with Taxpayers for Common Sense. If pension funds also hold Microsoft or Intel stocks, he said, "does that mean the government should turn around and should subsidize Microsoft or Intel to boost the pension funds?"
"It's really a preposterous sort of proposal," Ellis added. "It makes no sense from a public policy standpoint."
Taxpayers for Common Sense was among 29 conservative and watchdog groups that last month sent a letter to Congress taking broad aim at all types of energy benefits, including tax breaks, loan guarantees and direct payments (E&E Daily, March 18).
"Solvent federal government that has reeled back on wasteful subsidies will do a better job in the long run for the economy and the pension funds' performance than wasteful spending on oil and gas," Ellis said.
The API study was done by Robert Shapiro and Nam Pham of Sonecon LLC. An earlier study by the pair found that "98.5 percent of oil and gas stock owned by someone other than oil and natural gas executives, people with 401(k)s and IRAs, individual investors and institutions such as universities own the companies," Isakower said today.
"Tens of millions of Americans own oil and natural gas companies, and when the companies do well, so do they," Isakower said.
The statistic on stock ownership omits very important data, said Chad Stone, chief economist at the nonprofit Center on Budget and Policy Priorities. While a large share of people might hold some oil and gas stock either directly or in broad-based funds, he said, the largest amounts of stock in general are held by the very rich.
The richest 1 percent of the country holds a third of the country's total wealth, including stocks, bonds, real estates and other investments, Stone said.
"It's kind of a red herring to focus on the holdings of oil and gas executives versus everybody else," Stone said.
The study's findings also need to be looked at in light of the country's massive deficit and the potential ways to address it, Stone said.
"The question is, what is the impact of that on police and firemen?" Stone said. How would taxes on oil and gas companies, he said, "compare to cuts in Medicare, cuts to state budgets?"
"You can't just look in isolation at the fact that oil and gas has performed well," Stone added.
As well, he said, "the reason why oil and gas stocks go up is because energy prices are going up, and that hurts the same people they're talking about."
API this summer plans to ultimately release a report with statistics on pension funds in 17 states.
Shapiro, co-author of the study, worked as the Commerce Department's undersecretary for economic affairs from 1997 to 2001. He was principal economic adviser to Bill Clinton in his 1991-1992 presidential campaign and senior economic adviser to Vice President Al Gore and Sen. John Kerry (D-Mass.) in their presidential campaigns.