WASHINGTON, August 16, 2010 — Raising taxes on the U.S. oil and natural gas industry could significantly reduce domestic oil and gas production next year and cut it by as much as 10 percent in 2017, a new API-sponsored study by Wood Mackenzie concludes.
“The study illustrates a fundamental rule of economics: tax something more, get less of it,” said API president and CEO Jack Gerard. “But more important than the lost production is the loss of thousands of jobs that would follow. Advocates of higher taxes should understand who would really be hurt.”
The study looks at what could happen by eliminating two tax incentives: intangible drilling cost expensing and the domestic production activities (section 199) deduction.
“The incentives have increased U.S. energy production and jobs, and other industries enjoy the same or similar incentives,” Gerard continued. “Proposals to eliminate them for oil and gas alone would discriminate against an industry that already pays federal income tax at an effective rate more than 70 percent higher than the other S&P Industrials.”
The study estimates the adverse impacts of tax increases would be worse for natural gas, a clean-burning resource the nation will increasingly rely on to help reduce greenhouse gas emissions. “Total resources not produced could reach as high as 27 Tcf of gas and 700 mmbbls of oil over the next ten years,” the study concludes. “Almost half of the gas plays we consider to have future development potential are at risk under the proposed tax changes. The gas plays that become sub-economic are not only great in number, but represent more than 10% of the gas that will be produced over the next ten years.”
See the Wood MacKenzie study “Evaluation of Proposed Tax Changes on the US Oil & Gas Industry” here.