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Taxes and American competitiveness

The U.S. corporate tax rate is the highest among developed nations. According to the National Association of Manufacturers, U.S. manufacturers face higher tax costs than almost all competitors in other countries.

The United States has a statutory corporate tax rate (combined federal and state) which is the highest corporate tax rate among major competitors. In 2012, the effective income tax rate for oil and natural gas industry averaged 44 percent, compared to 26 percent for other S&P Industrial companies.

According to a recent IHS CERA study, the U.S. government also takes a greater share of American oil and natural gas companies’ earnings from abroad than almost any other government in the world. Of the 10 countries considered in the 2010 IHS CERA study, researchers found that only France and India took more of such earnings than the United States.

Proposed changes to the U.S. tax code [eliminating the Section 199 domestic production deduction on U.S. income and the offset to U.S. taxes for foreign income taxes already paid on foreign income for certain U.S. oil and gas producers--subjecting them to double taxation] would make U.S. companies even less competitive domestically and globally. IHS CERA found that “[P]otential new rules to restrict credits for foreign taxes already paid to a host government currently under discussion in the United States, would make the United States the least competitive among the analyzed peer group, excepting India.”

U.S. oil and gas companies are at a competitive disadvantage because of these current and proposed tax policies at home. The same IHS CERA study found that American oil and gas companies have faced increasing challenges in competing with their international counterparts since the 1970s, largely due to “the interaction between the fiscal arrangements in the home countries of IOCs [investor-owned companies] and the host countries in which they operate, and the home policy objectives.” The study went on to find that “the more that the home governments subtract from the equation, the less competitive companies from that country will be when bidding for mineral rights.”

Tax policy can either help or hinder the ability of U.S. oil and gas companies to compete for worldwide energy resources that keep our economy running: According to IHS CERA, “the acquisition of mineral rights is the paramount point of competition between oil and gas companies irrespective of their origin. Win it, and a company will have the ‘fuel’ in its portfolio to deliver superior growth and returns. Lose it, and performance (and in the long term, survival) become an uphill struggle.”

Adopting stable tax policies that enable the U.S. oil and gas industry to remain competitive in the global marketplace for energy clearly benefits the U.S. economy and secures American jobs.