Drilling in the Arctic Won’t Offset Reconciliation’s Deficit Increase

Op-EdDrilling in the Arctic Won’t Offset Reconciliation’s Deficit IncreaseDrilling in the Arctic National Wildlife Refuge won't put a dent in the budget resolution's planned deficit increase.

Energy & Natural Resources  | Quick Takes
Nov 2, 2017  | By  | 7 min read

Last week, Congress adopted its budget resolution for fiscal year 2018 to kick-start the highly anticipated tax reform process. Normally budget resolutions don’t get so much attention.

They are largely a symbolic step in the budget process. They set the total amount of discretionary spending for appropriators, but otherwise aren’t binding. Some years they aren’t even passed in both chambers. But this year’s resolution has received significant attention because it started the powerful process known as “reconciliation.”

The reconciliation process is an appealing vehicle because it effectively allows the majority party in Congress to pass legislation that addresses the debt, discretionary spending and tax reform all at the same time and pass it with a simple majority vote in the Senate. So there is no threat of a filibuster, and the majority only needs to get 51 votes – 50 if they want to rely on the vice president to break the tie. It’s a perfect recipe to push forward fiscally unsustainable tax “reform” at significant cost to taxpayers.

The final resolution as passed includes a set of reconciliation instructions to the House and Senate tax-writing committees to propose changes in law that could increase the deficit by $1.5 trillion, blowing all chances for the revenue neutral package we were initially promised. I’ve written before on the problems associated with reconciliation as a means to achieve tax goals. These instructions blow up the budget as we warned, so we won’t get into that again now.

Last week, I wrote about the big picture issues that should be considered in tax reform. This week, I want to draw attention to one outright foolish part of this frightful process: the instructions to the Senate Committee on Energy and Natural Resources to draft a proposal to decrease the 10-year deficit by $1 billion. Some are calling the move an offset for the tax provisions. Let’s do that math. The “offset” would reduce the amount the resolution adds to the deficit from $1.5 trillion to $1.499 trillion. It’s like the sale that tries to sell you something for $9.99 because it seems cheaper than $10.

Now I am all for cutting the deficit – my organization works towards that goal every day. But in this context, the instructions are no more than a political maneuver to help Sen. Murkowski, R-Alaska, move a highly controversial provision through the Senate. For weeks, the chair of the Senate Energy and Natural Resources Committee has made it known she plans to use reconciliation to allow oil and gas companies to explore and drill in the Arctic National Wildlife Refuge.

Taxpayers for Common Sense is not opposed to oil and gas drilling if the numbers work for taxpayers. That is, if we are adequately paid for our resources and we are not left with clean-up or other liabilities. Onshore, offshore, Texas, Florida or Alaska, take your pick. But the federal government has a terrible track record getting taxpayers a fair return for the oil and gas resources we all own. American taxpayers shoulder liabilities that should be carried by industry, we undercharge and under collect royalties and fees, we provide lucrative tax breaks to industry and we sell when the market is low. Bottom line: Taxpayers subsidize and provide giveaways to the oil and gas industry throughout the entire leasing process.

Back to the specifics of the budget instructions and the proposal to open up the Arctic National Wildlife Refuge. The biggest problem with this proposal is that there just isn’t evidence that revenue from leasing the proposed stretch of the refuge would materialize – outdated analyses rely on sky-high bonus bids for the new leases to generate the money. Even if every acre of the area proposed for development in the Arctic Refuge were leased for oil and gas production, the bonus bids would have to average more than $3,000 per acre to reach the $1 billion in revenues needed to meet Energy and Natural Resources Committee reconciliation instructions. For comparison, the average bid received in a 2008 auction for leases in the nearby Chukchi Sea was $977 per acre, or roughly $1,090 in 2016 dollars, (about one third of the price the Congressional Budget Office assumes in its estimates).

The good news is there are a million reforms and proposals that could get taxpayers a sweet $1 billion from natural resource revenues. Cleaning up federal leasing programs by charging appropriate royalties and rental fees could generate well over $1 billion. Finally enact a royalty on gold, silver and copper mined on federal lands or raise decades-old grazing fees, or collect on dozens of royalty-free oil and gas leases in the Gulf of Mexico, potentially earning taxpayers more than $10 billion, depending on production levels. Enacting proposals like these would produce $1 billion, and do it more quickly than counting on new and speculative development.

Here at Taxpayers for Common Sense we talk about subsidies to the oil and gas industry all the time. Earlier this month we released an analysis that found more than half of all acres leased to the oil and gas industry sat idle – doing little more than padding the books for industry and locking out taxpayers from using the land for other purposes. It’s clear the industry doesn’t need the parcels and the demand for leasing in the refuge is questionable. Other areas of Alaska make much more economic sense if the goal is oil and gas production.

Drilling in the Arctic National Wildlife Refuge will not bring taxpayers the revenues we need and it surely won’t put a dent in the $1.5 trillion the tax proposal will saddle us with. It’s time to put this phantom revenue idea to rest and get back to the real work of paying for this proposal.

Originally published on November 9, 2017 in U.S. News & World Report