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Amid Shutdown Talks, Steer Clear of Punitive Tax Hikes | Commentary

With the federal government in a partial funding lapse and a seemingly unavoidable decision point on the debt ceiling near, Washington is abuzz with renewed discussion of a “grand bargain” aimed at addressing our nation’s vexing fiscal challenges.

A grand bargain — provided it’s arrived at in a manner that prioritizes spending restraint, entitlement reform and a tax code characterized by lower rates and a broader base — would be grand indeed. Unfortunately, judging from recent statements made by President Barack Obama about the need to cut “loopholes,” the path toward this grand bargain may be littered with harmful rhetoric, as well as proposals that threaten to increase taxes and undermine our economic recovery.

Since before he even took office, Obama has undertaken an ill-advised campaign against American oil and gas producers — and it’s been rife with clever semantics and shaky terminology that have, for too long, sidetracked policymakers from earnest, straightforward debate regarding our nation’s aging and unwieldy tax code.

To further muddy an already toxic political environment — with rhetoric conflating loopholes and subsidies with deductions and credits — is ill-timed, to say the least. What’s worse, it threatens to add just one more economic risk to negotiations that are already overloaded with potential consequences.

As in most campaigns, reality often takes a beating: The notion that U.S. energy companies are escaping their fair share of taxes through “loopholes” isn’t supported by the facts.

If negotiations over the debt ceiling and a potential grand bargain return to the administration’s script instead of embracing more productive dialogue, it will take aim at legitimate parts of the tax law utilized by companies in many industries.

One is a deduction for U.S.-based manufacturing. Another allows for a credit against taxes paid in foreign countries for income generated in those countries.

Neither would be necessary in a simpler tax code that offers lower burdens across the board. Yet they aren’t “loopholes” in the sense that other taxpayers are underwriting a special kind of business activity with money out of their own pockets. Indeed, that kind of subsidy is more likely to occur with “alternative energy” technologies.

Careless or ill-informed policy would strip these provisions away from oil and gas companies and leave them in place for everybody else. Such an approach isn’t about closing loopholes; it’s about creating a punitive tax increase that would inevitably be passed on to consumers. It would also lead to employment cutbacks in an industry that supports almost 10 million good-paying American jobs and created 148,000 new jobs in 2011 alone.

There are indications that members of Congress from both parties are less inclined to jump on the old sock-it-to-oil-and-gas bandwagon. That’s especially true today, when domestic producers are bringing us so close to the once-implausible goal of becoming a net energy exporter (and have taken a leading role in boosting U.S. economic growth).

As for the fallacy that this industry is getting a free ride on taxes, consider: A widely-reported analysis from the New York Times using data from S&P Capital IQ found that oil companies make up three of the top 10 U.S. corporate taxpayers: Exxon Mobil Corp. at $146 billion, Chevron Corp. at $85 billion, and ConocoPhillips at $58 billion over the past five years. That amounts to tax rates, respectively, of 37 percent, 39 percent and 74 percent. The average corporate rate for companies listed on the Standard & Poor’s 500 index was 29.1 percent.

We must not let this become the latest example of game-playing with the tax code, particularly with the vital work yet to be done surrounding the debt limit, and, eventually, systemic tax reform.

Targeting any small set of companies out of political convenience is not just unfair — it’s also a disservice to our national economic interest, and it’s the very antithesis of sound tax policy.

Pete Sepp is executive vice president of the National Taxpayers Union (

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