Thelma & Louise, or Reagan & O’Neill?

Gridlock in Washington today poses a very real threat of throwing the country over the fiscal cliff and into a double-dip recession, all compliments of political dysfunction inside the beltway. And the consequences, however unintended, promise to have a dangerous impact on the energy industry. The agreement that created this dilemma may have appeared to be smart politics at the time but it was bad legislation, showing mainly that government wasn’t working.

Those who believe it is smart politics to go over the cliff much like Thelma and Louise did should remember that theirs wasn’t a happy ending. Economists, including the Congressional Budget Office, have warned of another recession and higher unemployment. In 1986, President Reagan and Speaker O’Neill were able to overcome partisan politics and agree on a tax reform package. That is the model that should be followed today. The potential common ground is wide and fertile, and a basic framework already seems to be in place. It only takes a willingness to do the right thing.

There is a clear link between the availability of affordable energy and economic growth. A “grand bargain” should reflect that reality so that we continue to develop our own energy resources and use them to create jobs and boost economic growth. The boon shale gas production like that in North Dakota, which has the lowest unemployment rate in the nation, is clear evidence of the benefits of energy development.

The best way for the government to get more revenue is by growing the economy. Revenues have declined from the historic average of about 19 percent of GDP not because we are taxed too little but because the economy has not recovered adequately from the recession.

Democrats look at the oil and gas industry like an ATM machine to get more revenue, claiming incorrectly that oil and gas companies benefit from unique subsidies and don’t pay their fair share. Both assertions are patiently false, as has been documented over and over.

In a recent opinion piece in the Washington Times, I wrote that in 2011 the taxes paid by the oil and gas industry were higher than the corporate tax rate and significantly higher than the overall average tax rate paid by all corporations. The so called special tax breaks that the President and some in Congress want to end for oil and gas are available to all business and are intended to prevent double taxation, create incentives for creating US jobs, and to treat drilling expenses like all other business expenses.

So, why treat the oil and gas industry differently? Proponents of pushing these changes want to drive fossil energy out of the economy as part of a plan to promote “clean energy”.

Many European countries, especially Germany, have traveled the clean energy road and by doing so have taken drove their economies into a ditch. An analysis of Germany’s rush to renewables by the European Institute for Climate and Energy warned of “impending doom for the German economy caused by the lemming like charge to the Green mirage of affordable renewable energy.” The report went on, “The problem is that these energy sources are weather-dependent and thus their sporadic supply is starting to wreak havoc on Germany’s power grid and is even now threatening to destabilize power grids all across Europe! … after tens of billions of eurosspent on renewable energy systems and higher prices for consumers, not a single coal or gas-fired power plant has been taken offline. To the contrary, old inefficient German plants have been brought back into service in an effort to stabilize the grid.”

Instead of punitive tax policies that will reduce private investment and raise energy prices, Congress should end subsidies like the production tax credit for renewables. They are pure waste. If the renewable industry cannot compete in the market place after decades of federal help, it never will, at least until there are some breakthroughs in technology that are not on the horizon.

The notion that budget cuts would be a “doomsday scenario” for environmental protection is a hobgoblin. Since 2007, Environmental Protection Agency’s (EPA) budget has gone from $7.7 to $8.4 billion, far out pacing any conceivable environmental risks. The EPA budget and those of other departments have plenty of room to accommodate reductions.

The last major government reorganization was over 80 years ago. The time is ripe for another one that makes the government function more efficiently and focuses on the services that government ought to furnish instead of all those is can and has chosen to furnish.

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