Obama’s oil, gas tax plan bad idea

Oil and natural gas companies are criticized for reaping huge profits. But singling out the oil industry for an additional $90 billion in taxes, as President Obama wants to do, can backfire.

With less money available, companies potentially could reduce investments in domestic energy production and slash research spending on advanced technologies.Jim Constantopolous

Higher taxes could push oil and gas investment overseas and drive up energy costs for consumers, something we can’t afford at a time when millions of Americans are out of work or under-employed.

New Mexico is one of several oil-and-gas producing states that could feel the brunt of a cutback in U.S. drilling, a reminder of what happened in the early 1980s after Congress passed a windfall profits tax on the oil industry.

A sharp decline in domestic energy investment led to a drop-off in U.S. oil-and-gas production, increased dependence on foreign oil and a loss of jobs and revenue. Consumers wound up with higher oil prices.

This is something our political leaders should take seriously and do their utmost to prevent.

The U.S. Energy Information Administration reports New Mexico is one of five western states that have made a notable contribution to the growth of U.S. oil production since 2010. While Texas and North Dakota led the oil boom, production in New Mexico, Oklahoma, Wyoming, Colorado and Utah grew 23-to-64 percent.

Oil production in New Mexico rose by 46 percent, mainly due to use of a new drilling technique — a combination of hydraulic fracturing and horizontal drilling — in the Permian Basin.

Enhanced oil recovery techniques such as carbon dioxide injection also are boosting production from conventional oil-and-gas wells.

The oil and gas industry supports more than 100,000 jobs in New Mexico. And these are relatively well-paying jobs, with the average annual salary being $58,622, compared to an average annual salary of $39,525 in New Mexico across all industries.

The oil and gas industry, moreover, contributes $11.3 billion a year to the New Mexico economy; that’s 14.2 percent of the state’s Gross Domestic Product.

Since 2008, Obama’s budget and legislative proposals have sought to repeal a manufacturing deduction for oil and gas companies, among other tax deductions, while keeping similar deductions in place for all kinds of other businesses.

Eliminating the manufacturing deduction, which has succeeded in encouraging job expansion and creation, is wrongheaded.

For most manufacturers, the current deduction is 9 percent of their net income derived from domestic production activities. In 2008, Congress lowered the oil-and-gas industry’s deduction to 6 percent.

Now the Obama Administration wants to eliminate it altogether. Repeal would cost the industry $17.4 billion.

A Wood Mackenzie study reports the repeal of the deduction and other proposed tax changes could reduce domestic oil production by more than 10 percent by 2017. Paying billions more in income taxes would make it more difficult for companies to find capital to build costly projects such as refinery expansion or terminals for exporting liquefied natural gas.

If such projects are canceled, our nation’s energy security would be harmed and potentially hundreds of thousands of jobs would be lost.

This little cloud on the horizon can grow into a thunderstorm.

Stopping Obama’s tax plan before it goes any further would be in keeping with the president’s own goal of expanding the economy and creating more jobs.


Jim Constantopoulos is a professor of geology at Eastern New Mexico University. Contact him at:



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