NAM makes comments before Senate Finance Committee.May 16, 2011 -
According to statement submitted before Senate Finance Committee hearing on Oil and Gas Tax Incentives and Rising Energy Prices, NAM is extremely concerned with proposals under consideration in Congress that would increase taxes for energy companies and discourage needed investment in energy infrastructure and supply. In particular, NAM strongly opposes proposal that would increase taxes on oil and gas companies by making them ineligible for Sec. 199 deduction for domestic manufacturing activity.
Comments of the National Association of Manufacturers Before the Senate Finance Committee
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National Association Of Manufacturers (NAM)
1331 Pennsylvania Ave. N.W.
Washington, DC, 20004
Press release date: May 12, 2011
Mr. Chairman and Members of the Committee,
The National Association of Manufacturers (NAM) is pleased to have the opportunity to submit this statement for the record of the May 12, 2011, Senate Finance Committee hearing on Oil and Gas Tax Incentives and Rising Energy Prices. The NAM is the nation's largest industrial trade association, representing small and large manufacturers in every industrial sector and in all 50 states.
The U.S. manufacturing sector uses nearly one-third of the nation's energy both as a fuel and as a feedstock and NAM strongly supports Congressional efforts to enhance America's energy independence and security. Without reliable and affordable energy sources, our manufacturing sector will not thrive. Manufacturers believe that the United States needs a comprehensive strategy that encourages the energy industry's efforts to develop the resources necessary to ensure an adequate energy supply. Affordable and reliable sources of energy are critical to ensuring a healthy manufacturing sector in this country and the competitiveness of U.S. manufacturers in the global market place.
NAM has long advocated for a diverse energy portfolio and we understand the value of getting the most out of our energy sources through improved conservation and energy efficiency. Many of our member companies are involved in significant research on technology that would produce alternative energy and increase access to domestic sources all while better protecting our environment and improving distribution. Nevertheless, it is clear that oil and gas will continue to play a significant role in our energy mix in the foreseeable future. Developing energy resources both domestically and overseas makes sense as we seek greater energy security in our effort to create new jobs and grow our economy. Consequently, we are extremely concerned with the proposals under consideration in Congress that would increase taxes for energy companies and discourage needed investment in energy infrastructure and supply. Targeting the oil and gas industry with punitive, discriminatory taxes is not the way to secure our nation's energy future.
Punitive Tax Increases
In particular, the NAM strongly opposes a proposal that would increase taxes on oil and gas companies by making them ineligible for the Sec. 199 deduction for domestic manufacturing activity. Sec. 199-enacted in 2004-is designed to reduce the tax burden on domestic manufacturers to help spur investment in the United States and create U.S. jobs. The combined federal and local U.S. statutory corporate tax rate, at more than 39 percent, is one of the highest among developed countries and more than 10 percentage points higher than the average corporate tax rate for other countries in the Organization for Economic Cooperation and Development. Moreover, U.S.-based oil and gas companies have one of the highest effective tax rates of any industry, both on a global basis and when looking at only at domestic income.
The Sec. 199 provision, which reduces the federal tax rate on income from domestic manufacturing activities, helps mitigate this tax burden for all domestic manufacturers, including energy companies. By reducing the tax burden on income from U.S. activities, the Sec. 199 deduction encourages more oil and natural gas production in this country, and helps attract needed capital to spur new petroleum refining capacity. As a result, high-paying U.S. jobs are preserved, and U.S. reliance on imported oil and related products is reduced.
In contrast, increasing taxes on the income from U.S. oil and natural gas production, refining and processing by eliminating this tax deduction will discourage new oil and gas investments in the United States by making domestic energy investments less competitive economically with foreign opportunities.
Manufacturers also oppose a proposal that would potentially subject overseas investments by U.S. energy companies to double taxation. The ability of U.S. energy companies to compete for global natural resources is critical to U.S. energy security. Their overseas exploration and production operations help provide a stable energy supply, which ensures a competitive and robust manufacturing sector in the United States.
U.S. energy companies with overseas exploration and production operations, so-called "dual-capacity" taxpayers, are subject to both U.S. taxes and foreign taxes while their non-U.S. competitors generally only pay taxes where income is earned. Current rules for "dual-capacity" taxpayers, already stricter than for other taxpayers, are structured to reduce double taxation of income under the U.S. worldwide tax system and limit credits for foreign taxes to payments that are truly in the nature of income taxes. Existing rules specifically deny credits for payments such as royalties paid to access a natural resource.
The proposal under discussion however, would deny foreign tax credits even for income taxes. It would unfairly and retroactively overturn well established rules, subjecting American energy companies to double taxation on new and existing investments. As a result, the value of existing overseas investments would decline and, in some cases, become unprofitable. Faced with higher costs, U.S. companies would have difficulty competing with foreign competitors for new investments, threatening our nation's long-term energy security.
Increased taxes for energy companies, including the proposals described above and other energy tax increases, will divert funds away from much-needed investments and jobs and also increase the costs of fuel to American energy consumers and manufacturers. The debate over energy policy should not be about imposing new taxes or new costs on the U.S. energy industry. Rather, the debate should focus on enhancing America's energy security through increased production of all types of energy, improved conservation and energy efficiency, more research on technology and alternative energy, increased access to domestic sources with continued environmental protections, and improved distribution. These goals are good for manufacturers, their workers and the overall U.S. economy. Thank you for considering our comments. We look forward to working with you on these important issues.