The Obama administration's fiscal 2011 budget proposal calls for royalty reforms and new fees for oil and gas companies. Will these changes level the playing field for other technologies to come onto the market? During today's OnPoint, Pete Sepp, vice president for policy and communications at the National Taxpayers Union, discusses the economic impacts of the budget proposal and explains why he believes all forms of energy should be given uniform subsidies.
Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. Joining me today is Pete Sepp, vice president for policy and communications at the National Taxpayers Union. Pete, thanks for coming on the show.
Peter Sepp: Great to be here.
Monica Trauzzi: Pete, the Obama administration's recent budget proposal calls for royalty reforms and new fees on oil and gas companies. They're hoping this will help create an even playing field for other technologies to come onto the market and they're also hoping for a favorable return for taxpayers. Your organization, however, is concerned that these steps would have a negative impact on the economy. Tell us why.
Peter Sepp: Well, very much so. For one, the playing field is already often tilted toward other forms of energy development than fossil fuels. If you take a look, for example, at the biofuels industry or the wind production industry, there are a number of subsidies there already. And we also have the prospect of nuclear loan guarantees being increased. So, when the president talks about there being an unlevel playing field tilted toward fossil fuel energy, we're not so sure that that's necessarily the case. And when you take a look at some of the things that the president is calling subsidies, like the Domestic Manufacturers Deduction, for example, under Section 199, that's not necessarily a subsidy aimed at the oil industry so much as it is a tax policy that applies to a lot of industries.
Monica Trauzzi: These companies are doing well though and they've been around for a while. Why should they continue to receive money and help from the government?
Peter Sepp: Well, our philosophy is that ideally there would be a totally neutral policy toward energy production as far as subsidization goes. There should be none of it at all from the government. They should stand or fail on their own merits and their own marketability.
Monica Trauzzi: Including for alternative, cleaner forms of energy ...
Peter Sepp: Including all of it.
Monica Trauzzi: That are new and may need some help?
Peter Sepp: Well, some of these industries are actually pretty mature. The wind industry and the biofuel industries, ethanol especially, have been getting subsidies for the better part of three decades now. And it leads you to wonder, well, when is enough going to be enough for these industries to be mature? And if not now, when people are more conscious than ever of environmental issues and gasoline consumption issues, then when will these technologies ever be viable in the marketplace? So we're saying, look, if we want to take a big view here about subsidization of various technologies, let's include all of them, rather than saying, well, all these industries, for example, can get the Section 199 deduction, but not oil and gas. Now, that seems to be more of a discriminatory policy than the administration is criticizing.
Monica Trauzzi: And so you think the trickle down to the American taxpayer will be what?
Peter Sepp: I think that if policies go into effect that would raise basically the tax burden on oil and gas by about $40 billion over the budget's window, that is going to trickle down to consumers in the form of higher energy prices, higher fuel prices, perhaps other kinds of detrimental economic activities, things like fewer jobs, perhaps less growth in the oil and gas industries. And, when you think about it, we want to have industries that are profitable right now because they're the ones that are carrying pension funds and stock holdings. These things are very important to our economy right now.
Monica Trauzzi: Now, this was just the president's proposal. How do you see it actually going once Congress starts considering it?
Peter Sepp: Yeah, very clearly there are interests on both sides of the tax credit issues. For example, there are about a dozen of those in the president's budget pertaining to energy. Some of them having to do with fossil fuels, oil and gas, those will be fought over in Congress a great deal. The Section 199 deduction has been a controversial issue for a number of years and there will be members of Congress in both political parties who will say this is too much of a punitive policy toward oil and gas. They'll object to it. So, this is just the beginning of the debate.
Monica Trauzzi: The administration is pursuing at least some of these tax increases and fees in order to end fossil fuel subsidies as was decided at the G-20 meeting last year, so this is not a total surprise.
Peter Sepp: No.
Monica Trauzzi: I mean something is coming down the line in order to follow suit with what the G-20 decided.
Peter Sepp: Right and what I think we're going to try to do on our part, as far as National Taxpayers Union is concerned, is to get policymakers to look at the bigger picture here. If indeed the Section 199 deduction is something that is not desirable for oil and gas in the minds of Congress and the president, well, maybe what we need to do is consider stripping away that deduction entirely and lowering corporate tax rates. That would help the economy a great deal, I think, by saying, okay, we're going to level the playing field by clearing away the thicket of deductions and exemptions and in exchange we can lower the actual corporation tax rate across the board for everyone. That would make us more competitive definitely with European countries. It's one of the few advantages that many of the EU nations, for example, have over the United States as far as tax policy is concerned.
Monica Trauzzi: But how do you know that that money is necessarily going to go to furthering domestic oil production, for example, and not just go into the pockets of the oil company executives?
Peter Sepp: Well, some of the money that would result from across-the-board tax reform would find its way into various portions of the economy besides oil and gas. The point is, from our perspective, why single out certain industries that have earned some bad label from a political standpoint? If we want to approach this logically, if we want to do things even like admission reductions logically, we need to think of the systemic impacts on our economy and these policies, which just try to aim a rifle at oil and gas while ignoring everything else, they won't work.
Monica Trauzzi: So, do you think there's a disconnect between what the president said during his State of the Union address and what was proposed in the 2011 budget?
Peter Sepp: I think there is somewhat of a disconnect, because on the one hand the president said we're going to take a broad-based approach to allow more development of oil and gas. Well, what does that necessarily mean? If it means opening up ANWR and OCS resources, sure, that would be a huge revenue raiser. Just by leaving the royalty structure the way it is we could get tens of billions dollars a year. In fact, we once calculated that you could basically repeal the entire Individual Alternative Minimum Tax if you were to open up those areas for exploration and use the royalties toward paying for repeal. Is that going to happen? Probably not with this administration.
Monica Trauzzi: All right, we're going to end it right there. Thank you for coming on the show.
Peter Sepp: My pleasure.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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