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Punitive energy taxes would sink state growth potential

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Margo Thorning Margo Thorning
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Margo Thorning is senior vice president and chief economist with the American Council for Capital Formation and director of research for its public policy think tank. Thorning also serves as the managing director of the International Council for Capital Formation, a new think tank incorporated in Brussels.

Energy has long been at the heart of West Virginia's economy. 

The state continually ranks among the top for energy production. And as the luster of coal may start to dim among some, West Virginia is fortunate to sit above the Marcellus Shale where technology has opened vast quantities of natural gas to production.

Natural gas is critical to West Virginia because its supply is projected to last as long as 100 years. Production and its associated activities are creating thousands of new long-term jobs across the U.S. in an industry with the average wage now topping $75,000.

It should come as no surprise, then, that two West Virginia delegates have created a new oil and natural gas caucus to ensure that policy decisions on energy are based on facts and the industry's importance to the state. "We need to work in conjunction with industry to ensure we realize the potential while maintaining appropriate levels of oversight," said Delegate Doug Skaff, D-Kanawha.

Skaff, a Democrat, and Delegate Eric Nelson, a Republican, both of Kanawha County, created the coalition in bipartisan fashion early this year. Their goals are admirable and ambitious. As Nelson said, "A major emphasis of the caucus will be to embrace the industry in ways which foster its potential to generate thousands more jobs, spawn capital investment in downstream manufacturing activities and transform the West Virginia economy."

Energy is driving much of the economic growth and job creation we have seen in the past few years, in West Virginia and across the nation. Decisions that our elected officials make in Charleston and in Washington, D.C., can have a critical impact on whether and to what extent that growth continues.

I am honored that Delegates Skaff and Nelson have asked me to brief the caucus on the impact of taxes and other issues on energy. Unfortunately, I continue to see efforts to treat the energy industry, and oil and gas in particular, in a punitive fashion — efforts that, if successful, could significantly slow economic growth and job creation.

All "Big Oil" has to do, it seems, is announce earnings and the call goes out once again for punitive taxes. What these demands don't take into account are the immense investments of billions of dollars required by the industry.

The actual data show that the industry's return on that investment slightly lags that of all industrials. And a New York Times study shows that oil and gas companies are taxed at a higher rate on average than the 500 companies that make up the S&P: 37 percent for energy companies and 29 percent for the S&P as a whole.

Despite these facts, the administration and some in Congress claim that the federal tax code "subsidizes" the oil and gas industry and are trying to deny energy companies the same tax credits available to all manufacturers for creating new jobs. Other federal tax provisions used by the oil and gas industry such as the deduction for intangible drilling costs (IDCs) and for geological and geophysical costs are also under attack. Deductions for IDCs and G&G are not "subsidies" since they are largely the labor costs of locating and drilling for oil and gas and have no salvage value to recover. In fact, they are analogous to the deductions that a retailer takes for wages paid to employees. If the oil and gas industry loses these tax provisions, those good, well-paying, long-term energy jobs would not be so plentiful. These tax increases are targeted only at energy companies. The vilifying of this industry should be of concern to all of us. These companies are the backbone of West Virginia's economy and the employer of many state residents. And this industry is much more than "Big Oil." Independent producers and the small businesses that support them are driving the natural gas growth in West Virginia.

We are fortunate that Delegates Skaff and Nelson have brought together the Oil and Natural Gas Caucus to ensure that state policy is based on facts, not skewed by misinformation and emotion. America's energy revolution promises to loosen the binds of reliance on foreign energy and boost our economy and employment. We shouldn't let punitive taxes steal that promise.