(The Center Square) – Members in the Texas oil and gas industry are crying foul over President Joe Biden’s plan to tax the industry as its workers are enabling Texas to lead the U.S. in oil and natural gas production and job growth.
In a speech Biden gave one week before the midterm elections, he said the industry has “a responsibility to act in the interest of their consumers, their community and their country, to invest in America by increasing production and refining capacity. If they don’t, they’re going to pay a higher tax on their excess profits and face other restrictions.”
The threat has been seen by some as an election ploy since only Congress can levy taxes. With the Republicans poised to retake Congress, a tax on the energy industry is unlikely.
The tax, first implemented under the Carter administration in 1980 reduced domestic oil production by 3% and 6% and increased foreign oil imports between 8% and 16%. In 2008, then-candidate Barack Obama vowed to reimpose the tax but reversed course after he was in office.
This year, U.S. Rep. Ro Khanna, D-Calif., introduced a bill to impose the tax nationwide and Gov. Gavin Newsom proposed one on refining profits in California. Since the 1980s, as California increased regulations, its oil production dropped by 70% and Californians now pay the highest gas prices in the U.S. Under Newsom, California’s banned the sale of internal combustion engine cars by 2035 and plans to ban diesel trucks by 2040.
By comparison, under Texas Gov. Greg Abbott, Texas leads the U.S. in oil and natural gas production and job growth and has the lowest gas prices.
Ed Longanecker, president of the Texas Independent Producers & Royalty Owners Association, told The Center Square that Biden targeting the industry “is yet another effort in a growing list of misguided domestic energy policies that will have many unintended consequences for consumers and our economy.”
Making the announcement after energy companies posted strong quarterly financial statements was “particularly nonsensical, short-sighted and lacks perspective,” he adds. “U.S. energy producers are subject to a wide range of unique market facts, including extreme volatility. Those that were able to stay in business in 2020 lost tens of billions of dollars due to the sudden drop in oil prices. Setting a precedent that manipulates market principles when companies profit but allows them to lose when times are bleak ensures that corporations will limit their investments in the future and denies producers the opportunity to succeed in a free market system.”
By March 2020, the industry experienced a “bloodbath.” By April, the WTI was negative $40 a barrel for the first time in history. Prices at the pump reached historic lows as U.S. crude oil production saw the largest annual decrease on record in 2020.
In 2020, more than 100 companies filed bankruptcies, Longanecker adds, with the most being located in Texas.
Former Clinton administration Treasury Secretary Larry Summers also said he didn’t “quite follow the logic” of Biden’s proposal “since even with the windfalls Exxon has underperformed the overall market over the last 5 years.”
Texas operators have already been “responding to the call to increase production, despite facing numerous challenges, including inflationary pressures, workforce shortages, and an adversarial federal policy environment,” Longanecker adds. “It’s time to take responsibility for the negative impact failed domestic energy policies have had on consumers and work collaboratively with all stakeholders to address the global energy crisis. This means developing a stable regulatory environment for energy investment in the United States.”
Todd Staples, President of the Texas Oil & Gas Association, told The Center Square that Biden’s about-face comes after he “has gone to other countries asking for foreign production while here at home he has cancelled pipelines, delayed permits, removed federal acreage from being leased and discouraged investment by suggesting oil and natural gas will not be needed. Elevated prices are directly tied to these actions.”
“To even contemplate punitive measures like a windfall profits tax only further hurts the American consumer because it works against increased production by yet again discouraging needed investment dollars to expand domestic production,” he adds. “Americans deserve energy security. It’s time our federal government treated oil and natural gas like an asset, not a liability.”
Midland-based Oil and Gas Workers Association Board Member Richard Welch told The Center Square, “Over the past two years, we’ve witnessed an attack on our fossil fuel industry like never before. Not solely from the Oval Office but from Democrats across the board. Closure of the Keystone Pipeline on President Biden’s first day in office, canceling federal land permits and offshore drilling, sent the price of crude skyrocketing and created a worldwide shortage, which were completely avoidable.
“To make matters worse, draining the Strategic Petroleum Reserves to historically low levels and selling crude to other countries is putting Americans at risk of an infrastructure shutdown.”
He adds that states along the East Coast are experiencing a severe diesel supply shortage due to several factors, including stringent regulatory policies implemented by the Obama administration. In 2008, there were 14 refineries on the East Coast; now there are only seven, he said.
An Army veteran, Welch adds, “diesel is imperative for U.S. national security. Our entire U.S. military force relies on diesel for its operations. How is our military supposed to defend us if we can’t even fuel it?
“Diesel is arguably the lifeblood of America: everything depends on it,” he adds. “Our entire infrastructure runs on diesel—all agricultural equipment used to plant, grow and harvest our crops, feed our livestock; 18-wheeler trucks and tractor trailers transporting all the goods we buy online, in stores, and moving cargo from ports to cities; ships and boats of all sizes transporting cargo and catching fish—all rely on diesel.
“Stifling the industry that fuels the lifeblood of our country is like blocking the arteries to your heart. If we don’t reverse course, we’re just a few beats away from a heart attack.
“No diesel – and no oil and gas industry – means the end of society as we know it.”