In this rocky time for the U.S. economy, there was some good economic news this week.  Earnings reports from some of the investor-owned oil companies were released, with several companies exceeding analyst estimates.  A profitable energy industry is welcome news for the American people, who after all own a substantial portion of these companies in the form of mutual funds, IRAs and pensions.  High profits signify the efficient use of resources in the energy sector, helps offset the tremendous losses being incurred in other sectors.  Higher profits also mean that the government will collect even more revenue in the form taxes and royalty fees – maybe even enough to help offset the recent flurry of enacted and proposed government bailouts.

Some lawmakers view earnings reports as an opportunity to beat up on oil companies for having the nerve to earn a profit.  This week was no different.  Senator John McCain, for example, made an oft-repeated claim today that the 2005 Energy Policy Act contained “billions in corporate giveaways to the oil companies.”  The truth is that taxes on oil companies increased under the Energy Policy Act, a fact that seems to have eluded many in the national media and on Capitol Hill.

Senator McCain’s rhetoric regarding the 2005 energy law is both misguided and misdirected.  According to a report by the Congressional Research Service, the Energy Policy Act of 2005 (EPACT05, P.L. 109-58) indeed included several oil and gas tax incentives, providing about $2.6 billion in tax cuts for the industry.  However, the measure also imposed $2.9 billion of tax increases on the oil and gas industry, for a net tax increase of nearly $300 million.  Meanwhile, the largess of the tax credits and subsidies in the 2005 measure actually went to other industries, most notably to those who call themselves “alternative” energy sources.

But perhaps the biggest flaw of the 2005 Energy Policy Act was its failure to meaningfully increase domestic supplies of oil and natural gas by continuing to prohibit access to the 1002 area of the Arctic National Wildlife Refuge (ANWR), oil shale, oil sands, and the majority of the Lower 48 Outer Continental Shelf.  Currently less than 4% of the government’s lands and waters are leased for energy production, even as American families and their employers struggle to pay their energy costs and remain competitive in this ongoing recession.

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