By PETE SEPP
ALEXANDRIA, Va. -- From saltpeter to limestone, and bituminous coal to natural gas, West Virginia has long prospered from its abundant natural resources.
As a result of new drilling techniques, the state is primed to benefit once again as gas locked in the Marcellus Shale has suddenly become recoverable. If sensibly managed, the U.S. shale boom could help West Virginia better deal with declining coal production and effectively weather a difficult transition period. Unfortunately, sensible management hasn't been a specialty of the federal government lately.
Thus far, the rising prospects for natural gas have mainly been the result of increased development on private and state land, as the Obama administration's Interior Department has dramatically slowed permitting on federal land. While the president touts the 600,000 direct jobs the natural gas industry could offer by the end of the decade, his budget proposes multi-billion-dollar tax increases on oil and gas companies that that threaten this very growth.
Two of the major provisions he is targeting for elimination – the Section 199 deduction and "dual capacity" credit – are enjoyed by similar companies across the entire economy. Qualifying activities could include, for instance, domestic manufacturing from outfits like a General Electric, or international operations from firms like an Apple. Yet, somehow, when the deduction and credit apply to oil and gas companies, they are labeled as "subsidies" that ought to be eliminated.
In 2009, the natural gas industry already directly employed close to 20,000 people in West Virginia, and that number is growing rapidly. Considering the additional jobs created in service industries, education, health care, and even finance supporting energy related activities, the present and future employment impact is vast.
The state's capacity has even attracted the attention of major U.S. oil and gas companies, in addition to the independent producers that have led the state's natural gas charge to this point. These developments are poised to push the Mountain State's economy into higher gear. According to preliminary Labor Department statistics, West Virginia's unemployment rate has already dropped to 7.4 percent, nearly a full point lower than the national average. If only this progress weren't threatened by the president and his Congressional allies' uncontrollable urge to raise taxes.
The top federal corporate tax rate here will become the highest in the industrialized world when Japan's scheduled tax cut takes place next month. Several sources, including the Energy Information Administration (EIA) and PricewaterhouseCoopers (PwC), have put the effective tax burden (after deductions, credits, and certain other tax provisions) on major oil and gas companies at or above 40 percent. In the PwC analysis, this was over 14 points higher than the average tax load for U.S.-headquartered firms it studied in all other industries.
Ironically, even as President Obama thinks "Big Oil" ought to be subjected to even higher tax levels than these, he has heaped praise on some large U.S. companies. During his State of the Union address, the president applauded late Apple founder Steve Jobs, whose business is among the most profitable in the U.S., for his innovation. No wonder: companies earning money constitute one important sign of a healthy economy. It can mean benefits like job creation, better returns for shareholders, more secure retirement plans, surging product development, and greater competitiveness abroad.
It is imperative that the Obama administration make the right decision regarding whether productive, innovative, and inevitably profitable companies are a good thing or a bad thing for the country (hint: they are good). Although the president's corporate tax reform plan commendably calls for rate reductions, it sends mixed messages to industries that have been contributing to our recovery ... and can do still more.
Continued pursuit of economically destructive energy taxes, which would cut state economic output by $1.6 billion over ten years according to a recent study, is detrimental to the prosperity West Virginians deserve. Hopefully elected officials like Senators Joe Manchin and Jay Rockefeller understand these simple economics and support more sensible tax policy.
Sepp is executive vice president of the 362,000-member National Taxpayers Union (ntu.org), a non-profit, non-partisan citizen group working for lower taxes, limited government, and economic freedom at all levels. NTU has nearly 2,000 members in West Virginia.