June 24, 2021

Democrats Add Taxes to Their Fight Against American Energy


KEY TAKEAWAYS

  • On top of Democrats’ harmful energy policies, they are taking steps to penalize producers of fossil fuels through the tax code.
  • Fossil fuels account for nearly 80% of U.S. energy consumption, and the oil and gas industry supports an estimated 10 million jobs in America.
  • We can boost support for clean technologies without sabotaging American energy independence, killing jobs, and raising costs for consumers.

In Democrats’ effort to turn our economy upside down in the name of “climate crisis” orthodoxy, they have been waging a no-holds-barred fight against a critical segment of U.S. energy production and those who work in it. In May, the Senate Committee on Finance voted on partisan legislation that would target producers of fossil fuels through the tax code, link energy tax credits with unprecedented labor and workforce requirements, and phase out credits based on meeting Democrats’ climate goals. Majority Leader Chuck Schumer on June 18 took initial steps to bring S.2118 to the floor for consideration. In their crusade against fossil fuels, the Democrats ignore the reality that these fuels accounted for nearly 80% of U.S. energy consumption in 2020.

Sources of U.S. Energy Consumption in 2020

Sources of U.S. Energy Consumption in 2020

This latest legislative push comes after a significant legal setback for the Biden administration’s attempt to use regulation to implement its anti-fossil fuel agenda. On June 15, a federal judge blocked the administration’s “temporary” ban on new oil and gas leases in Alaska and the Gulf of Mexico.

penalizing energy producers

The tax code contains numerous provisions to support a reliable, affordable energy supply and to incentivize innovation and adoption of clean energy technologies. Instead of working with Republicans to strengthen an all-of-the-above energy tax policy, Democrats are focused on penalizing producers of fossil fuels. Their legislation would eliminate or modify 17 tax provisions utilized by businesses doing fossil fuel extraction, production, and transportation. Many of these tax provisions are analogous to those available to other industries, and others deal with special aspects of the fossil fuel industry.

For instance, the bill would repeal a provision that allows companies to immediately expense intangible drilling costs, e.g. the wages, supplies, and survey work required to develop an oil or gas property. Immediate expensing is a tax provision widely available to job creators in all industries because it incentivizes companies to pursue investment. President Biden has proposed a similar assault on American energy security in his budget for fiscal year 2022 and his so-called American Jobs Plan. These changes would effectively raise the tax burden on fossil fuel producers, especially domestic producers, leaving them with less money to spend on more productive things like improving the efficiency of their current operations or lowering emissions.

threatening Jobs and energy independence

The timing of this attack could not be any worse. Higher tax bills would also leave energy producers with less money to spend on hiring workers and raising wages. The oil and gas industry supports an estimated 10 million jobs in America. Democrats’ ideological crusade – including President Biden’s resurrection of some of the failed energy policies of the Obama administration – endangers these livelihoods. This comes as many of these workers are still reeling from the economic stress caused by the pandemic. 

It also comes at a time when traditional energy producers finally achieved something no one anticipated a decade ago: American energy independence. The United States became a net total energy exporter in 2019 and 2020, a feat last achieved in 1952 according to the Energy Information Administration, and in so doing improved our energy security, economy, and geopolitical posture. And what do these companies and workers get for this remarkable achievement? A reckless Democratic plan that will punish them and shift some oil and gas production to hostile nations to meet our country’s energy needs.

Hurts consumers and Undermines Priorities

Higher taxes on energy producers will be borne in part by anyone who uses energy, in the form of higher prices. According to EIA, almost one-third of households in America recently have experienced challenges in covering their energy bills. Higher energy costs – like all cost-of-living increases – will disproportionally harm low-income Americans, who spend a relatively larger share of their income on energy. Democrats cannot argue that their policies do not hurt low-income families, so they were forced to include a provision in the manager’s amendment providing rebates if people or small businesses face higher taxes as a result of the legislation. Meanwhile, their bill expands tax breaks for electric vehicles, a giveaway that disproportionately benefits wealthy Americans.

Democrats’ targeting of fossil fuels could threaten other priorities. Energy development on federal lands and in federal waters produces revenue the government uses to help fund programs to bolster outdoor recreation opportunities and address the needs of our public lands. Less energy production could affect revenues for those programs in the future. In addition, approximately half of oil and gas revenues are paid to states, which use the money for K-12 education and other basic services.

In addition, Democrats claim their legislation is “tech-neutral.” However, the all-or-nothing emissions targets included in their bill would effectively prevent many advanced technologies from receiving any credit. Further, they rejected Republican amendments aimed at ensuring energy costs would not rise as a result of the legislation and that would retain incentives for fossil fuels until EIA guarantees the law would not lead to more oil and gas imports. Penalizing fossil fuel producers that are responsible for most of the nation’s energy production is not a neutral approach to energy policy. It is a punitive approach. We can incentivize development of new clean technologies without sabotaging American energy independence, killing jobs, and raising costs for consumers. Democrats should work with Republicans to promote reliable, affordable, and accessible American energy for the future.

Issue Tags: Taxes, Energy