The Democrats Exploit A Crisis--As Usual

Last Saturday, I did a comparison of two executives, one a Gulf Coast governor, the other a play President. As to the latter, a little further expansion on his reaction to the BP oil spill is in order, as several of my friends have pointed out. The Obamists always have a plan to deal with a crisis, and most often it has to do with bleeding somebody dry.

Never mind his failure to take any real physical action to prevent, then stop the spill, but it is worthwhile to discuss how Obama and his statist administration have exploited the disaster to advance their agenda of taxing American businesses out of existence. The Euroweenie Democrats now want to change the tax codes on American energy-producers and oil-producers to make sure another major environmental tragedy like the BP oil spill doesn't occur again. It seems to have escaped Obama's notice that the B in BP stands for "British." The corporation which actually caused the oil spill will end up with a massive tax advantage over American corporations which had nothing to do with the spill.

According to Wall Street Journal contributor Joseph R. Mason, the current moratorium instigated at Obama's behest will cost Gulf Coast residents more than 8,000 jobs, $500 million in lost wages, $2.1 billion in related economic activity, and somewhere near $100 million in lost state and local tax revenue. Mr. Mason knows whereof he speaks, both as a scholar and a resident directly affected by the moratorium. He is the Noyse/LBA Chairman of Banking at the Louisiana State University School of Business. The moratorium is temporary, but this administration is so hostile to traditional sources of energy that it wouldn't be surprising to see it extended indefinitely (at least until enough Democrats are turned out in November). Since the moratorium isn't doing enough damage, the Democrats figured they'd claim to be saving Gulf coast residents by adding insult to injury.

In order to punish the oil business while at the same time creating an evermore massive government bureaucracy to interfere with job creation and perpetuation, the Democrats are poised to pass new energy bills which will cost somewhere between $15 billion and $25 billion. That would be on top of the $95 billion and 400,000 jobs which would be lost if the moratorium is made permanent. And how does the boy genius in the White House plan to pay for all this? The usual. Tax the evil corporations--but tax the American corporations in a grossly disadvantageous way in comparison to the taxes on foreign energy producers.

Bear with me, this is a little tricky and slightly wonkish, but it's a major issue. In his proposed 2011 budget proposal to Congress, Obama intends to repeal the "dual capacity" tax credit which allows American corporations to play on a level playing field with foreign corporations. As it currently stands, American corporations with overseas operations receive a deduction on their US taxes which are in direct proportion to the taxes they have actually paid to foreign governments. Clearly, that prevents American corporations from being taxed twice on the same income. This has allowed American corporations to remain competitive.

Under Obama's plan, American energy corporations would pay the outrageous taxes to the foreign nations, then pay them again for the increasingly outrageous American business taxes. It should be noted that American tax law is already askew since the US is the only major nation which taxes foreign revenues, so removing the dual tax credit also removes the American ability to compete.

And as if that's not enough, another deduction would be eliminated, and this time the loss would affect oil and gas companies only. All manufacturing corporations currently benefit from Section 199 of the American Jobs Creation Act of 2004 which allows such corporations to deduct a certain percentage of their domestic production activity annually. The act was designed to allow corporations to reduce their tax burden in order to have sufficient revenue to hire more new employees. Obama may later decide he likes the idea so much that he'll try to eliminate the deduction for all manufacturers. But for now, it's aimed solely at his bete noire, traditional energy producers.

Mr. Mason and The Journal go into greater detail about the pending monetary losses occasioned by such a change in the tax code. For the accountants who read this blog, I suggest you read his entire thesis. But once I hit $75 billion in losses, I started to think that everything beyond that was kicking a dead horse--which is what American oil producers will be at the end of all this. And it isn't just the corporations that will get hurt. The unemployment, taxes and adjunct business losses will be astronomical. But why let human suffering get in the way of a good poke-in-the-eye to big business?

A recent Voter/Consumer Research poll indicates strong opposition to the Obama plan, and much of it grows out of the moratorium. Many of the respondents were not yet aware of the full impact of the concurrent change in the tax codes, but almost all sensed that there is a major tax-and-grab government plan in play.

71% of the respondents oppose any ban on offshore drilling, while 60% oppose a ban on deep water drilling. 88% oppose outright increased government regulation, though 75% want Congress to improve oversight and enforcement of existing laws. 77% said they don't want American corporations taxed twice, and of those, 82% said tax increases will simply be passed on to the consumers, and 81% said further taxation and regulation would make it much more difficult for American energy-producers to compete with foreign companies.

This is all on top of the disdain the respondents felt for Obama's physical response to the BP spill. 42% approved of Obama's handling of the situation, 53% disapproved. As for Congress, 29% approved of Congressional action, 60% disapproved. BP took its hit as well. 29% felt BP acted properly, while 66% felt the opposite. Other oil companies didn't fare much better, getting 34% approval and 40% disapproval.

It's also important to note that while foreign corporations such as BP will benefit all the way around from the Obama plan, they are at least corporations chartered by friendly nations. Also advantaged are highly unfriendly nations such as China and Venezuela. The Obamists don't consider it sufficient that they are assisting foreign corporations which compete with American companies, but are also completely uncaring about the fact that they are assisting America's enemies.

William Ahern at the Tax Foundation summed this up by saying that the elimination of the dual capacity tax credit "is a violation of all normal standards of how to apply the foreign tax credits. Oil companies that pay corporate tax rates abroad that are higher than the corporate tax rates that other firms pay would no longer be able to take credits for the amount they would have paid at the lower tax. . . . If the Congressional proposal is signed into law by President Obama, U.S. oil companies will be paying tax to two countries on the same dollar of income."

Ahern also points to a very strange twist that is being put on this direct attack on American energy-producers. The elimination of the manufacturing dual capacity tax credit for oil producers discussed above would take away that job-creating deduction in the 2004 act designed specifically to "promote all domestic manufacturers." The production of rap music is considered by the Obama administration as being such a huge job-creating business that it qualifies for the credit that oil companies will lose. Somehow, in order to allow the deduction, the Obamists qualify rap artists as "manufacturers." As Ahern aptly puts it, "I guess Congress loves rappers more than roughnecks."