The Sanders Tax Bill Would Hurt U.S. Oil Producers and Workers

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With gas prices soaring across the country, politicians should be working to fortify American energy independence and ensure that oil companies are treated fairly compared with other industries. Senator Bernie Sanders and Congresswoman Ilhan Omar must have missed the memo. They’ve introduced a bill to make drilling for oil more expensive.

The “End Polluter Welfare Act,” as they’ve dubbed it, would eliminate a critical tax provision that eases expenses for American oil and gas companies drilling domestically. This bill would eliminate American jobs, reduce wages, and make America more dependent on energy sources in the war-torn Middle East, in addition to raising gas prices.

One of the bill’s most economically harmful provisions would be the elimination of full expensing for intangible drilling costs. Under current law, oil and gas companies can immediately deduct from their taxes the cost of drilling and preparing wells, instead of having to deduct the cost over several years. The Sanders bill would change this by forcing these companies to deduct such expenses, including those for labor and supplies, over a seven-year period, artificially increasing the cost of domestic drilling.

Full expensing is vital to capital-intensive industries such as the energy sector. These businesses spend huge amounts of money and time planning where to drill and buying the resources necessary to get the job done. Allowing them to write off the full expense of their investments ensures that their economic productivity is rewarded, not punished by the tax code.

Repealing expensing for intangible drilling costs would not be a good idea under almost any circumstances, but the effect of Sanders’s bill, particularly if taken in conjunction with other aspects of President Biden’s green agenda, would be to further depress domestic production in the years to come. Sanders might believe that climate considerations are justification enough for that, but part of the price to be paid for this would be to make America more reliant on energy from the likes of Saudi Arabia and Russia. The strategic disadvantages that would come with that are too obvious to need to pointing out.

Despite what some Democrats may claim, full expensing for intangible drilling costs is not a “fossil-fuel subsidy.” It just treats drilling costs like any other front-end investment. Full expensing is a critical tax provision in any industry because it stops what would otherwise be the taxation of investment expenditure and, as a result, encourages companies to invest, thereby growing the economy and increasing wages. Repealing full expensing for intangible drilling costs would create a tax distortion, treating these investments as if they were different from investments made by other businesses. And that would cause investors to seek out other industries, avoiding oil for tax purposes. That’s obviously bad for workers in the oil industry, but the ill effects wouldn’t stop there.

Sanders’s bill is simply a job killer. A 2014 study looked at the consequences of repealing expensing for intangible drilling costs and found that it would eliminate 265,000 jobs, reduce capital investment by $407 billion, decrease American oil production by 3.8 million barrels per day, and result in 9,800 fewer wells drilled. Not only would it eliminate blue-collar jobs in oil country, but it would also probably raise the price of gas, which would affect drivers across the country. It would hurt those living paycheck to paycheck the most. America’s workers and consumers lose under this bill, and all in the name of “climate justice.”