The Obama administration's proposal to repeal two major oil and natural gas tax credits -- the Section 199 and dual capacity deductions -- would produce extensive economic losses over the upcoming decade, said an economist with Louisiana State University.
In a new study, Joseph R. Mason sees $341 billion in decreased economic output, almost $68 billion in wage cuts, and initial losses of more than 154,000 jobs in 2011, trailing to 115,000 as long as the tax credits are repealed.
The Section 199 credit allows manufacturers (including oil and gas producers) to deduct from taxable income an amount equal to 6% of their qualified production activities income, and the "dual capacity" tax credit is used by domestic companies to offset foreign-sourced income, according to The Hill.
"Some analysts predict that the repeal of the two [tax] regulations for oil and gas companies 'would raise some $210 billion over 10 years. The problem is that those analyses do not take into account the inexorable reality that U.S. corporation wills respond to higher taxes by restricting domestic production and moving operations elsewhere in the world," he said in the study, which was commissioned by American Energy Alliance.
"Needless to say, it doesn't make sense to pay $341 billion in lost output and $68 billion in lost wages for $210 billion in increased tax revenues (ignoring the $83.5 billion in tax revenues lost on the decreased production and wavers)," Mason said.
Texas, California and Louisiana -- the most devastated by the Deepwater Horizon tragedy -- will be the hardest hit, with Texas alone losing more than 38,000 jobs; Louisiana losing nearly 13,500 jobs and California losing more than 23,000 in 2011 if Congress repeals the tax breaks, he said.
The Senate is set to vote on its own repeal of the Section 199 domestic manufacturing deduction Tuesday.
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