By Rep. Mark Blasdel
On the surface, a proposal to eliminate or even reduce the corporate income tax rate seems as likely to fly as a lead balloon. Our populist sentiments rankle at the thought that corporations should get a free pass from paying taxes on their income, while the rest of us send Uncle Sam a handsome contribution each year.
What's interesting, though, is that many economists on both sides of the political spectrum agree that we should indeed reduce or eliminate our corporate income tax.
For conservatives, taxing corporate income reduces the money available for firms to invest in expansion, research and development, and job creation. The corporate income tax has distorting effects on the market that can give some firms (i.e. companies based in countries with lower tax rates) an artificial advantage over American firms.
For liberals concerned about redistributing wealth, it’s much more efficient to tax the income and capital gains that individuals receive from business activity rather than tax the corporations themselves. That’s because well-off corporations, just like individuals, have a built-in incentive to invest in lawyers, lobbyists, and accountants to help them avoid some taxes.
And because interest payments are deductible for corporations, but dividends are not, the corporate income tax incentivizes companies to use riskier debt financing rather than invest their own equity.
Even President Obama has proposed a modest reduction in the corporate income tax. But even the best of policy proposals isn’t immune from becoming a political football.
President Obama and liberal groups have slammed Mitt Romney’s proposal to take the corporate income tax down to 25% from 35%. They’ve primed the issue using the vitriolic, progressive rhetoric that we’ve become wearily used to over the last few years—but most alarming for Montanans are the attacks against the energy industry that they’ve included in their criticism of the Romney tax plan.
To hear them tell it, as outlined in a much-referenced “study” from the liberal Center for American Progress (CAP), Romney’s plan is merely a massive subsidy to the oil and gas industry. While their gross misuse of the term “subsidy” is offensive, what’s more infuriating is the false implication that cutting the corporate income tax rate would only affect oil companies. How absurd.
The simple fact, contrary to countless claims otherwise, is that oil and gas companies do not receive any federal subsidies. The truth is the exact opposite—according to the Tax Foundation, the oil and gas industry pays more money in state and federal taxes than it earns in profits.
For example, between 2006 and 2010, the largest oil company, ExxonMobil, paid $59 billion in taxes and had earnings of $40.5 billion. The CAP study, and the politicians who have taken up their talking points, would also have us believe that oil and gas companies are somehow singled out for special treatment in the Romney tax plan. That’s simply a political fabrication of their own making.
In fact, it’s the Obama Administration and his liberal allies who have singled out energy producers for special treatment—and not in a good way. According to the Wall Street Journal, the oil and gas industry bears an effective tax rate of over 41%, compared to an average of 26.5% for the rest of the S&P industrial index. Despite already paying a higher effect rate, the President and Democrats in Congress have made repeated attempts to increase taxes on oil and gas firms even higher.
For an energy-producing state like Montana, that should ring alarm bells for voters. The oil and gas industry is one of the few bright spots in our state economy. From all parts of the state, there has been an exodus of workers headed east to work in the oil fields in Richland County. Without the growth in oil and gas production in our state, we would undoubtedly be suffering from higher unemployment today.
One sure way throw a wet blanket over this economic growth is to raise taxes even higher on energy producers. President Obama had it right when he proposed cutting the corporate income tax rate—although he didn’t go as far as is needed. Shame on Obama for criticizing Mitt Romney for proposing the same, and for accusing him of giving special handouts to the oil and gas industry. The only one who’s proposing disparate treatment for this important industry is Obama himself.
Rep. Mark Blasdel is the Chair of the Montana House Taxation Committee. He represents House District 10 in Flathead County.