INSIGHT: US energy, chems, others blast Obama stimulus plan

09 September 2010 17:13  [Source: ICIS news]

By Joe Kamalick

New White House stimulus plan gets a frosty receptionWASHINGTON (ICIS)--US energy, petrochemical and broader business interests are overwhelmingly hostile to a new White House economic stimulus plan, charging that President Barack Obama is “robbing Peter to pay Paul” by boosting taxes on oil and gas production to inject federal funds into road and bridge repairs.

In a series of White House press releases and speeches this week, the president proposed a package of stimulus spending and tax incentives totalling approximately $350bn (€276bn), including an immediate $50bn to be provided for infrastructure improvements.

The infrastructure part, said the president in a speech early in the week, would involve rebuilding 150,000 miles of US highways, the addition of 4,000 miles of new railroad tracks and the construction or improvement of 150 miles of airport runways.

More broadly, the White House economic stimulus would allow US businesses to deduct 100% of their 2011 spending on new equipment or factory expansions within the year, at a cost estimated to be $200bn.

Ordinarily, businesses are allowed to deduct only 50% of such capital expenditures and must spread that tax credit over a period of three to 20 years, depending on the type of investment.

The plan also would expand and make permanent the tax credit that companies earn for making investments in research and development (R&D), at a cost to government coffers of about $100bn. 

That R&D tax benefit has been available since 1981, but it has been extended only on a year-to-year basis by Congress.  Having grown weary of the annual drama and uncertainty over whether Congress would extend the credit for another year, US businesses have long appealed for a permanent extension of the R&D tax credit.

On its face, the new stimulus package does appeal on all counts to the broad US business community. But the problem lies in how the Obama administration - anxious to avoid charges of adding still more red ink to the nation’s already huge debt load - plans to pay for the $350bn in business benefits.

The plan would raise taxes on US domestic oil and natural gas production and allow an existing tax cut on upper income earners - including small businesses and many manufacturers - to expire on 31 December this year.

Charles Drevna, president of the National Petrochemical & Refiners Association (NPRA), said that the proposal was inherently counter-productive.

Plans that “strengthen our nation’s economy and create good jobs for American workers should be a top national priority” and would be welcome, Drevna said.

“But it makes no sense to fund this with new taxes and crippling regulations that will destroy existing jobs” in the petroleum and petrochemicals industries, he said.

America’s oil refineries and petrochemical plants employ nearly 2m people directly and indirectly,” he said, adding that policies that threaten those jobs will “increase the ranks of the unemployed, weaken our nation’s manufacturing base and endanger our ability to provide the American people an affordable and reliable supply of gasoline and diesel fuel”.

The Independent Petroleum Association of America (IPAA) charged that the new White House effort to rekindle the struggling economic recovery would generate layoffs that would more than offset any new jobs created in infrastructure work.

IPAA chairman Bruce Vincent warned that by financing the stimulus plan with “billions of dollars in higher taxes on America’s independent oil and natural gas producers is not a jobs plan - it’s a jobs killer”.

IPAA’s member companies typically are small enterprises with an average of 12 workers in each firm, well near the bottom of the federal definition of small business, one with 500 workers or less. But Vincent noted that IPAA members account for more than 80% of domestic gas production and nearly 70% of oil output.

The National Association of Manufacturers (NAM), whose member firms include many chemical makers and plastics applications firms, also slammed the White House stimulus plan.

“This country needs more jobs, not higher energy taxes,” said NAM president John Engler.

Engler also targeted the White House’s plan to end the 2001 and 2003 income tax cuts that were put in place during the Bush administration but which are due to expire at year end.

Obama supports short-term renewal of the tax cuts for US households with annual incomes less than $250,000, but he has insisted that tax cuts benefitting families with earnings above that level must be ended.

But Engler noted that according to US Internal Revenue Service (IRS) data, “73% of manufacturers in this country pay income taxes at the individual rate”, which means that most of those company owners would see their taxes increase in the new year.

Engler said that the new stimulus proposal “includes positive proposals that manufacturers have long supported, including a permanent and strengthened R&D tax credit and 100% expensing” of capital investments.

“However, pairing these pro-growth incentives with tax increases will only neutralize or make these positive proposals even more harmful to our current economic challenges,” he said.

The US Chamber of Commerce also saw some merit in Obama’s proposals on R&D and capital spending tax credits.

“But paying for these cuts by increasing taxes on other sectors is likely to severely mitigate any short-run benefits,” said Chamber government affairs vice president Bruce Josten.

“Robbing Peter to pay Paul is not a pro-growth tax policy,” Josten said.

“The best way to get this economy growing fast enough to create jobs and drive the unemployment rate down is to ensure that taxes do not increase for consumers and businesses,” Josten added, referring to the White House plan to raise income taxes for households and business owners with incomes above $250,000.

The National Federation of Independent Business (NFIB), a leading US small business trade group, also voiced opposition to the White House plan.

NFIB tax counsel Bill Rys said that “What small businesses need right now is more customers and certainty over their taxes”.

Rys said that the White House and Congress should extend all of the individual income tax cuts due to expire this year.

“It is extremely difficult for small business owners to plan for future investments or new hiring when they are unsure what their tax liability will be next year,” Rys said.

Predictably, the Obama stimulus drew quick fire from congressional Republicans, with Senate Minority Leader Mitch McConnell saying that the White House plan would kill jobs rather than generate employment.

“Americans want jobs, not more government, more debt and more taxes,” McConnell said, calling on the president to end his opposition to extending the upper income tax cuts.

Senator James Inhofe of Oklahoma, the ranking Republican on the Senate Environment and Public Works Committee, said that “the administration’s bid to pay for the additional spending by eliminating what the White House calls tax loopholes for the oil and gas industry should be viewed as another attack on that industry”.

He said that the president’s proposals, which need legislative approval, "would go nowhere in Congress".

Inhofe dismissed the plan as “all show for the election” that will be held on 2 November.

But some Democrats on Capitol Hill also oppose the new stimulus plan.

Senator Michael Bennet (Democrat-Oklahoma) said on Wednesday that “I will not support additional spending on a second stimulus package”.

Bennet is among many Democrats in the Senate and House that are facing tough re-election contests in November amid widespread voter worries over the still floundering economy and rising national debt.

Bennet said that any new infrastructure initiatives should be paid for out of the $275bn unspent funds still left over from the initial $787bn White House stimulus package that was passed in February this year.

In addition, President Obama’s former director of the White House office of management and budget, Peter Orszag, also weighed in to support a two-year extension of the Bush-era tax cuts.

In an opinion article in the New York Times this week, Orszag said that once the US economic recovery gains a solid footing, the Bush tax cuts could safely be eliminated.

But, he added, “no one wants to make an already stagnating jobs market worse over the next year or two, which is exactly what would happen if the cuts expire as planned”.

“Higher taxes now would crimp consumer spending, further depressing the already inadequate demand for what firms are capable of producing at full tilt,” Orszag said.

($1 = €0.79)

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By: Joe Kamalick
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