By Robert L. Bradley Jr., CEO and founder of the Institute for Energy Research
Rep. David Camp (R-MI) won’t be seeking another term in Congress. But fortunately, he plans to keep fighting for fundamental tax reform. In announcing his retirement, he stated: “I will redouble my efforts to grow our economy... by fixing our broken tax code.”
Comprehensive tax reform isn’t going to happen this year, but the debate isn’t going away. America’s excessively high corporate tax rate suppresses job-creation and economic growth. Hopefully, Camp will spend his remaining months in Congress urging lawmakers to simplify the tax code that has hindered the American economy.
High corporate taxes kill jobs. Indeed, lawmakers have been able to justify dealing tax breaks to favored industries because they mitigate the damage done by the default rate. A lower rate with a cleaner code is a win-win.
In 2013, the United States boasted the highest corporate tax rate among all OECD countries. Of course, industry-specific credits, deductions, and rules mean many companies pay far less than the 35 percent statutory tax rate.
A recent study by the Government Accountability Office found that America’s largest corporations pay an average tax rate of 12.6 percent. According to an analysis by USA Today, 57 companies on the S&P 500 – including firms like Verizon and MetLife – pay an effective tax rate of zero.
But not all companies can use credits and deductions to lower their tax bill. Many pay far more than the statutory rate of 35 percent.
Consider the energy sector. In 2012, ExxonMobil paid an effective rate of 39.4 percent. Chevron’s rate was 43.2 percent, while ConocoPhillips’ was 51.5 percent. ExxonMobil’s $31 billion corporate tax bill is more than the amount paid by the bottom 50 percent of American income tax filers in 2010.
Even with its outsized tax burden, the energy sector continues to generate economic growth. Between 2007 and 2012, employment in the oil and gas industries rose by 40 percent while overall private sector employment grew by only 1 percent.
The consulting firm IHS CERA found that the oil and gas boom generated 2.1 million direct and indirect jobs by the end of 2012. By 2025, the industry is estimated to create another 3.9 million positions.
But even more Americans could benefit if energy companies weren’t shouldering a disproportionate share of the corporate tax burden.
Thankfully, political leaders understand the need for a simpler tax code. In addition to Republican Congressman David Camp, incoming Senate Finance Committee chairman Ron Wyden has long advocated for simplifying our “dysfunctional mess” of a tax code.
Even the head of the IRS, John Koskinen, recently promised “to do whatever we can” to help simplify the tax system.
With energy, however, the Obama administration continues to add rules that will raise taxes on the industry. Last year, the White House announced a hike in the so-called “social cost of carbon” (SCC) – a measure of the supposed cost of emitting carbon – from $23.80 per metric ton to $38.
By all accounts, the SCC is an academic invention with little basis in reality. Nevertheless, anything to do with a carbon tax is wealth destruction.
Indeed, when Australia implemented a carbon tax in July 2012, the country’s household electricity costs spiked by 15 percent and unemployment rose dramatically. .
Instead of making our tax code more complex, our leaders must commit to simplification. Camp’s last few months in office are an opportunity for lawmakers to lay the groundwork for the historic tax reform America needs.
Robert Bradley Jr. is the CEO and founder of the Institute for Energy Research