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Commentary: New taxes could restart recession

Missouri appears to be well on its way to recovery from the recession. By working hard, investing in infrastructure and having a strong food produce manufacturing sector, the state has been able to lower its unemployment rate nearly a percentage point below the national average. Local elected officials have encouraged a business-friendly atmosphere and, despite budget shortfalls, avoided the urge to raise taxes. Unfortunately, proposals being considered by the federal government could trip up the Show Me State’s progress.

President Obama recently announced his push for new legislative measures forjobs aid immediately upon Congress' return from summer recess. In the scramble to find “offsets” to fund these measures outlined in the Small Business Jobs Act, some lawmakers have proposed stealth energy tax hikes that selectively target our nation’s robust oil and natural gas industry. Quietly added to the bill just before the Senate adjourned, the Baucus amendment targets the Section 199 tax deduction: a provision designed to stimulate U.S. job growth across all manufacturing sectors. The amendment proposes repealing this job creating credit for only oil and gas firms and, thereby, raising tax rates beyond the some $165 billion already paid annually by the sector. Such a move would increase costs of domestic fossil fuel production by more than $13 billion over the next 10 years.

With recent economic data suggesting U.S. manufacturing is at a historic low point, U.S. oil and gas producers, and the manufacturers that rely on them, cannot afford another large increase in production costs. Missouri’s 8,500-plus manufacturers employ more than 370,000 people. New taxes would hamper any recovery by this industry, which is still reeling from the loss of 126 firms and 7,960 industrial jobs since August 2009, and 26,554 jobs — 6.5 percent — in 2008. Increased prices at the gas pump directly impact the states’ significant transportation sector and lead to larger energy bills for small businesses. Add these new strains to decreased tourism in places like Branson as a result of the potentially higher fuel costs to understand the “help” offered from Washington.

Another misguided proposal (initially put forth in the White House’s 2011 budget and expected to come up again in Capitol Hill’s extenders package debate) would upend current tax laws, forcing our homegrown energy companies to pay taxes twice on income earned abroad. If Congress implements these proposed changes to so-called “dual capacity ' tax law, the United States would become the only country in the world to impose both foreign and domestic taxes on earnings. Not only would this cost American jobs, it would jeopardize our country’s energy security, effectively subsidize our foreign oil and gas competitors and ship our future traditional energy investments overseas.

Like most other changes to corporate taxes, manipulation of either Section 199 or dual-capacity tax law would affect American households because costs are ultimately passed down to consumers. A 2006 Congressional Budget Office report revealed approximately 70 percent of the U.S. corporate tax burden is borne by domestic workers in the form of lower wages, while domestic shareholders bear the remaining 30 percent. That means these measure would hurt factory workers in Kansas City as well as retirees in St. Louis.

One 2008 study found that repealing Section 199 for oil and gas companies would trigger broad economic fallout in our nation, states, and individual households. By increasing corporate tax burdens, Congress would put American firms at a competitive disadvantage with our foreign competitors -- a move guaranteed to drive U.S. investment abroad and increase our reliance on foreign energy sources, including those in hostile and unstable foreign regimes. The 1973 oil crisis vis-à-vis OPEC and Saudi Arabia was difficult enough.

A jump in energy prices would stifle growth and cause potential investors to look elsewhere. Our economy is teetering on the brink of a prolonged recession. Jobless claims remain at historic highs while Americans are buying fewer homes than we have in nearly half a century. U.S. oil and gas manufacturing, an integral part of our economy, cannot sustain the cost of repealing critical incentives for job creation or changes a vital factor in our competitiveness in the global market.

Just a few hundred miles down the Mississippi River, New Orleans and the entire Gulf would be devastated by these taxes. As we learned during the recession, seemingly distant collapses of Wall Street banks and the housing market spread like wildfire, and proved detrimental to the Midwest.

Thomas Pyle is president of the Institute for Energy Research, Washington.

This article originally appeared in the St. Louis Beacon.