Big oil pays Tri-parishes big bucks

People outside U.S. oil and gas production regions might easily complain about tax break incentives and credits claimed by many companies within the petroleum industry. What critics often fail to realize is that the taxes, as well as payroll, generated by oil and gas companies have been significant in supporting the economic base of the states they call home and the nation as a whole.

When a joint congressional, so-called super committee of 12, commissioned to reduce federal spending and cut the $14 trillion national debt, met for the first time this month, an immediate target on their agenda was oil and gas, and tax breaks offered by federal tax codes to the petroleum industry.

Much of the jobs bill President Barack Obama introduced to Congress on Sept. 8, focused on eliminating tax cuts being offered to business, in particular the oil and gas industry.

Petroleum has been one of the few stable elements in an otherwise dismal national economy. LSU economist Dr. Joseph Mason contends in an economic impact study released last week that withholding tax incentives from the oil and gas industry would not only prompt an initial loss of 154,000 jobs in energy and associated businesses. It could mean a $341 billion loss in economic output and a loss of $68 billion in lost wages nationwide.

“[T]he Obama administration aims to single out U.S. oil and gas firms and raise the cost of energy for consumers by eliminating critical tax credits to which all taxpayers are entitled,” Mason said in his report to the American Energy Alliance.

According to compiled information from the Internal Revenue Service and the U.S. Commerce Department, the oil and gas industry pays an average of more than 41 percent in effective tax rates, while other U.S. businesses pay on average 26 percent.

The federal tax base and overall economy is significantly influenced by oil and gas. In Louisiana, state and parish revenue also depend greatly on what takes place in oilfields and refineries.

With an oil and gas production severance tax in place, the Louisiana Department of Revenue listed its collections in 2010 as including more than $63 million in Lafourche Parish, $26 million in St. Mary and $319,850 in Terrebonne. In total the state collected more than $743 million from the oil and gas production severance tax.

Some tax experts are concerned that big oil companies might not be paying their fair share, and note that even before any cuts are repealed, those designated to pay severance taxes need to be held accountable for what they owe.

“What [oil companies] are doing now is just walking away [from wells],” Terrebonne Parish Assessor Gene Bonvillian said. “We put them on the tax rolls and if they don’t pay the taxes they are adjudicated to the state, then it becomes the taxpayers that pay.”

Bonvillian did not have numbers on taxes collected from big oil by Terrebonne Parish or a number of delinquent companies owing tax money available.

“A lot [of tax collection] has been neglected over the years,” real estate appraiser Scott Drapkin said regarding land owned but, in some instances, unused by oil and gas companies. “We don’t get near the oil and gas revenue in this parish that we should.”

In 2010, the U.S. Treasury Department collected more than $5 billion in revenue from the Louisiana Outer Continental Shelf alone. Mason suggested that reducing tax incentives and breaks could actually cause a decline in the amount of revenue collected by government agencies, because of the decline in production cuts and de-facto tax increases.

“The repeal of essential tax deductions that support domestic exploration and production of oil and gas is an issue that we discuss regularly,” Louisiana Oil and Gas Association President Don Briggs said. “Provisions like the intangible drilling deduction, the domestic manufacturing deduction, and the percentage depletion deduction have been on the proverbial chopping block as potential future sources of government revenue for some time. But, now more than ever, we must ensure that they remain untouched throughout this spending cut and tax increase debate.”

Briggs noted that if Congress, through the 12-member super committee, chooses to do away with tax provisions, domestic exploration and production will decrease, prices will rise, revenues will decline, jobs will be lost, and debt issues will worsen.

Mason, Briggs and other industry insiders contend that the president, Congress and general public could learn a great deal about how petroleum and natural gas not only keep the energy industry running, but the nation going as well.