By EDWARD CROSS
Kansas Independent Oil & Gas Association

The economy has shifted into higher gear with President Donald Trump in the White House. Growth was just 1.6% in the last year of Obama and is now at just above 3% since the beginning of the 2nd quarter of this year. The stock market and business confidence levels point to continued optimism for the future.

Nowhere is the Trump effect more evident to date than on energy policy. President Trump has called for “American energy dominance” in the years ahead, and that is a future that is highly attainable before the end of his first term. Today, America has more than a 100-year supply of natural gas and can become independent for our crude oil needs this decade.

Federal tax reform is essential to keep the U.S. growing and will be a dominant Congressional issue the remainder of 2017. If we had a level playing field with the nations with which we compete, the 3% growth President Trump has already elevated the economy to in his first year of office, could reach 4% or more in 2018 and beyond. Tax reform will be a significant challenge for Congress in the coming months. As intense as the interest is in moving tax reform this year, achieving both a tax reform consensus and legislative consideration in the midst of the other items on the Congressional agenda will be a significant challenge.

As tax reform discussions in Washington move forward, policymakers and the public need to be aware of the key advantages available to our nation through increased domestic oil and natural gas production. Tax reform may help keep America competitive in a global marketplace, but it must be done carefully.

Contrary to what some in politics and the media have said, the oil and natural gas industry currently enjoys no unique tax credits or deductions. Since its inception, the U.S. tax code has allowed corporate tax payers the ability to recover costs and to be taxed only on net income. These cost recovery mechanisms or tax provisions, also known in policy circles as “tax expenditures”, should in no way be confused with “subsidy”, i.e., direct government spending.

Cost recovery measures for small independent oil and natural gas producers, like the percentage depletion deduction and the intangible drilling costs (IDCs) deduction, are neither subsidies nor loopholes but tax provisions critical for American independent oil and natural gas producers to sustain capital availability and formation to promote continued oil and natural gas exploration and production activity. By improving cash flow, these cost recovery measures allows American independent producers to invest more money into creating jobs and producing the energy that keeps our economy running.

Percentage depletion and IDCs are critical for capital creation for the independent oil and gas industry and increased activity by independent producers. Market-created jobs, rather than those directly created and supported by the government, is a key benefit of increased activity by independent producers. These jobs are often in rural areas of the country that are struggling for opportunity.

Recent studies show that repealing percentage depletion and IDCs would result in fewer wells drilled, fewer Americans employed, and less energy produced here in the U.S. This impact is both significant and immediate. According to studies, over 190,000 Americans would be unemployed within one year if percentage depletion and IDCs were repealed; growing to 265,000 jobs lost over a decade. The oil and natural gas industry has been hit hard over the last three years by low oil and natural gas prices. For states where independent oil and natural gas producers are responsible for the majority of production, like Kansas, repealing percentage depletion and IDCs could result in oil and natural gas production falling an additional 60% and industry workforce falling an additional 33%.

That kind of impact would be almost impossible to offset just by lowering marginal rates.

Tax reform is a complex issue that must reflect how capital is formed and recuperated if it is going to truly help and support economic growth. Tax reform that damages cost recovery measures like percentage depletion and IDCs in order to pay for lower rates could hit the brakes on America’s energy and manufacturing revolution.

The American oil and natural gas industry has the power to help our economy continue to grow. Tax reform efforts need to move in the direction of strengthening businesses of all sizes, including small businesses, putting our economy on a track for continued growth. Tax reform efforts must recognize successful tax policies currently in place and look for changes that support growth and continued investment in the U.S.

That’s the kind of bipartisan solution that’s needed in Washington today.

Edward Cross is President of the Kansas Independent Oil & Gas Association.