Depriving U.S. energy companies of certain tax deductions — as is being considered by the Obama administration — “would have a negative impact on federal revenues,” according to research by economist Joseph R. Mason, Louisiana State University endowed chair of banking.

In his study, “Budget Impasse Hinges on Confusion among Deficit Reduction, Tax Increase and Tax Reform: An Economic Analysis of Dual Capacity and Section 199 Proposals for the U.S. Oil and Gas Industry,” Mason finds that repealing tax deductions for American energy manufacturers would result in:

Congressional Republicans are facing mounting pressure from the White House to rescind oil and natural gas tax breaks in a deal aimed at reducing the federal deficit. Producers say they plan to fight to retain the tax breaks, but they concede that it won’t be easy if the repeal of industry tax deductions is part of a “grand bargain” to cut the deficit (see Daily GPI, July 1).

“The administration’s proposal to eliminate tax deductions on U.S. oil and gas companies is grossly counterproductive toward the goal of increasing federal revenues,” Mason said. “Such a move would have a net negative impact on revenue, thereby increasing federal deficits.

“If the goal is deficit reduction, a far more meaningful approach would be reforming federal tax and business policies that encourage economic growth. Expansion of oil and gas exploration and production on the Outer Continental Shelf, for example, would generate an estimated $11 billion annually in federal tax revenue in the short run, and $55 billion annually in federal tax revenue in the long run.”

Mason’s report was sponsored by the American Energy Alliance (AEA), which is the advocacy arm of the Institute for Energy Research.

“This study confirms that President Obama’s insistence on imposing discriminatory tax changes on American oil and gas companies has nothing to do with deficit reduction — it has everything to do with satisfying his anti-energy agenda,” said AEA President Thomas Pyle.

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