Manufactured issues relating to the natural gas and oil industry are unending. The industry is constantly defending itself against improper information that is either out of context or inaccurate. Case in point, in a recent press briefing, White House Press Secretary Jay Carney responded to a question concerning the sequester’s mandatory spending cuts by saying, “So it can't be we'll let sequester kick in because we insist that tax loopholes remain where they are for corporate jet owners, or subsidies provided to the oil and gas companies that have done so exceedingly well in recent years have to remain in place.” 

Unfortunately, Carney’s comment regarding “subsidies provided to the oil and gas companies” asserts that the energy industry receives subsidies from the federal government, which is not the case. Misguided information such as this negatively affects the reputation of the natural gas and oil industries, and this comment surely leaves many questioning these so-called oil and gas “subsidies.” In short, it sounds like American taxpayers are footing the bill for billions of dollars in subsidies for oil and gas companies, similar to Solyndra; however, in truth, the oil and gas companies do not receive any subsidies. 

When Carney and others refer to these oil and gas “subsidies,” they are referring to the fact that oil and gas companies are allowed to take tax deductions for the expenses they incur – just like every other business in the United States. To call this a subsidy for the oil and gas industry is like saying that homeowners receive housing subsidies because they deduct their mortgage interest expenses on their income taxes. 

The simple truth is that oil and gas companies, like all other businesses, are allowed to deduct their expenses for salaries, and for the equipment they purchase. They also deduct expenses for exploration and development, which are called intangible drilling costs. Intangible costs are costs for investments in oil exploration or production that have no salvage value, such as clearing land to enable an oil well to be drilled. Natural gas and oil companies are not required to amortize these costs over the entire expected life of the oil well just like other companies that are allowed to expense expenditures for capital equipment. Also, oil and gas companies are permitted to deduct royalties they pay to foreign governments, the same as any other business that incurs business expenses.

The discussion about eliminating subsidies for natural gas and oil companies is just another way of saying that taxes on oil and natural gas companies should be increased.  

So what would happen if taxes were increased on the natural gas and oil industry? Well, taking into consideration that oil and gas companies employ over 9 million people in the United States, would it make economic sense to single out one of the largest employers in the U.S. and increase their taxes? Economists say that if you want less of something, you tax it. Do we want less employment in the energy sector?

The obvious answer is no. There are some who argue that taxes on oil and gas companies should go up in order to force gasoline prices up. Such arguments are usually associated with references to climate change – the argument being that higher oil prices will discourage the consumption of fossil fuels, which is good for the environment. Of course, this argument avoids discussion about the devastating effects on the economy that high gasoline and other petrochemical prices will cause.

The more reasonable position is the recognition that every aspect of our economy depends on reasonably priced natural gas and oil because everything we eat, wear and use depends in some way on oil and natural gas. A tax increase on energy companies will increase the prices of virtually everything.

It should also be noted that 97% of the energy stocks are owned by individuals, individuals who are depending on the dividends of energy companies for their retirement income or growth in their retirement portfolio. With interest rates being held artificially at near zero, stocks are the only investments that are attractive.  Higher taxes on oil and gas companies will ultimately reduce dividends.