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Oil Industry Tax Changes Could Cost 118,600 Jobs

Jennifer A. Dlouhy
Houston Chronicle
September 13, 2010

 More than $341 billion in economic activity and 118,600 jobs could be jeopardized over the next nine years if lawmakers agree to an Obama administration plan to repeal two tax deductions used by the oil and gas industry, according to a new analysis by a Louisiana State University economist.

At issue are the “section 199″ domestic manufacturing tax deduction that allows oil companies to cut their taxable income by six percent and a proposal to repeal the “dual capacity” deduction, which allows companies to write off foreign levies (such as petroleum income taxes) on incomes from abroad. As part of an Obama administration plan to get rid of tax incentives for fossil fuels, the White House has  proposed repealing the domestic manufacturing deduction for oil, gas and coal companies and also has asked Congress to strike the dual capacity deduction for all taxpayers.

LSU finance professor Joseph Mason predicts that the two changes would “absolutely devastate economic recovery and overall domestic job creation.”
“Under the guise of ‘making Big Oil pay,’ plans to increase energy taxes by repealing dual capacity and section 199 of the U.S. tax code — a manufacturer’s credit –- will actually harm small businesses and American families,” Mason said.

Mason’s study –  underwritten by the American Energy Alliance — predicts that the two changes would spur U.S. corporations to curb their domestic production and move operations to other countries — changes that threaten to kill 154,000 jobs in 2011. Most of those lost jobs would be in Texas, California and Louisiana, Mason says, because of a high concentration of refineries and the entrenched presence of the oil and gas industry in those states. Mason predicts Texas alone could lose more than 38,000 jobs.

Mason insists that jobs nationwide hang in the balance. “While there will undoubtedly be job losses in the energy sector,” he says, “many job losses will be in ancillary industries that support the oil industry, as well as seemingly unrelated industries located in regions where oil and gas industry earnings make up a substantial share of local economic activity.”

Mason stresses the importance of the dual capacity tax deduction to allowing “many U.S. energy firms to compete with foreign state-run corporations in such countries as Russia, Venezuela and China, which enjoy extremely favorable tax treatment in their home countries.”

Lawmakers have been cool to most of Obama’s oil and gas tax proposals, but some of them are gaining traction in the wake of the Deepwater Horizon tragedy, as Congress searches for ways to offset unrelated spending proposals. The changes could be used to finance an administration proposal for new federal investments in high-speed rail and other transportation projects.

Separately, the Senate is set to vote Tuesday on a proposal that would repeal the domestic manufacturing tax deduction for the nation’s five largest oil companies — as part of a plan to pay for an unrelated tax filing change.