Fiscal brinksmanship – those seasonal scenarios during which our government tiptoes to the edge of the latest government shutdown, fiscal cliff, or sequestration – has become as much a part of the Washington political culture as seersucker on summer Thursdays. And thanks to the fact that we have grown accustomed to funding our government through an unending series of continuing resolutions rather than following the comprehensive annual budget process. Unfortunately, this trend is likely to continue for a long time to come.
Treasury Secretary Jack Lew, speaking last week at the Peterson Institute for International Economics, noted the need for policymakers and politicians of all stripes to “simmer down” in this area – to step away from the edge of the cliff, tone down the rhetoric, and view fiscal politics through a less panicked lens.
While one can take issue with much of the policy that Secretary Lew has touted in recent months – Treasury’s action to stem the tide of inversions, for instance, fails to address the fundamental problems that are driving corporate inversions – it’s hard to disagree with the idea that Washington would be best served to “simmer down” when it comes to tackling the deficit and following a rational budget process. No business would long survive if it budgeted like the government.
The business community certainly shares that perspective. Deficit showdowns create enormous uncertainty for job creators and innovators in the United States. As politicians trade partisan barbs and talking points in front of the cameras, the business community is forced to contend with and plan around the real world implications of those barbs.
Too often, the heated partisan debates that accompany deficit questions spawn politically motivated tax proposals that, if implemented, would badly undermine the ability of some of our nation’s most vital economic engines to continue to help the country grow. Rather than attempting to meaningfully address the issues that have helped to create our deficit challenges, they seek instead to score political points by targeting, for instance, the oil and gas industry with punitive tax increases shrouded in the false logic that these companies do not pay their fair share of taxes or by introducing “tax expenditures” that promote more crony capitalism.
These tactics – which inevitably accompany every deficit showdown – underscore the importance of taking Secretary Lew’s advice and simmering down. Levying new taxes on the oil and gas industry – which already pays more in taxes than any other industry in our economy – would cost jobs, increase energy prices, and make it significantly more difficult for American companies to keep pace with their international competitors.
Capital intensive industries like oil and gas require a stable investment environment from which to plan. Punitive tax increases such as those so often suggested by the White House or its allies in Congress – repeal of the Section 199 deduction for oil and gas companies, modification of dual capacity taxpayer rules that would lead to “double taxation” of American companies operating overseas, and many others – work in direct opposition to such stability.
And that’s bad news for our economy at large, because the numbers consistently demonstrate just how important this sector is to our recovery.
Energy Information Administration (EIA) data shows that over a five year span (2007-2012), job growth in the oil and gas industry outpaced job gains in all other sectors. While total U.S. private sector jobs only increased around one percent during that time period, the oil and gas sector experienced an increase of forty percent. According to a PricewaterhouseCoopers report, the sector supported 9.8 million jobs in 2011. As the energy industry continues to grow, especially in the area of shale, a McKinsey Global Institute study forecasts the possibility that by 2020, close to 1.7 million additional jobs could be generated across the economy along with $69 billion a year to the Gross Domestic Product (GDP).
Along with creating jobs and paying higher taxes, the oil and gas industry also continues to outpace other industry sectors when it comes to investing in the U.S. The Progressive Policy Institute (PPI) named ten energy companies, including ExxonMobil, Chevron and ConocoPhillips, to its U.S. Investment Heroes of 2014 list. All told, the ten energy companies invested a combined total of $57 billion in 2013. Adding to the industry’s already heavy tax burden would divert such investment, and in doing so, put a damper on economic growth.
Rather than governing by crisis, our policymakers would do well to take a look at the broader factors that are contributing to the fiscal challenges that our nation still faces. Instead of putting a Band-Aid on the inversion issue, we should address the burdensome tax code that has compelled so many companies to seek friendlier tax jurisdictions overseas. And rather than attempting to plug deficit holes by slamming one of our most vital economic actors with punitive and harmful taxes, we should pursue comprehensive tax reform that helps to grow our economy without singling out one industry for special treatment or extra punishment. Doing that will be more challenging than the tax reform act of 1986 because there are even more special interest that will fight to keep their favored provisions. Our long term economic interest will best be served by members of Congress having the courage to rip up the current tax code and replace it with one that is truly fair, simple, transparent, and that provides a real level playing field.
With less than three weeks until the election, we’re sure to hear plenty more heated rhetoric on the campaign trail. But once Congress returns, let’s hope that they are able to refocus on actions and words that can really help.
This article appeared on the FuelFix weblog at http://fuelfix.com/blog/2014/10/16/time-to-simmer-down-on-fiscal-crises/