Letter to The Honorable Peter R. Orszag, Director Office of Management and Budget

Letter

U.S. Sen. John Cornyn (R-Texas), a member of the Senate Finance Committee, today sent a letter to OMB Director Peter Orszag following up on his questions during a Senate Finance Committee hearing regarding the Administration's proposals to increase taxes on domestic energy producers that are included in the FY2011 budget request:

"Raising taxes on domestic energy producers will only increase our reliance on foreign oil, needlessly forcing more people onto the unemployment line," Sen. Cornyn said. "The last thing small business owners need during these difficult times is more uncertainty and less incentive to hire people."

-The full text of the letter is below-

February 19, 2010

The Honorable Peter R. Orszag, Director
Office of Management and Budget
Executive Office Building
Washington, DC 20503

Director Orszag:

I am writing to request clarification on a few of the answers you provided to me during your appearance before the Senate Finance Committee on February 4, 2010. As you may recall, I asked you a number of questions regarding the Administration's proposals to eliminate incentives for the domestic production of energy that are included in the Fiscal Year (FY) 2011 budget request.

During the hearing, I asked you if it is the policy of the Administration to raise energy costs on fossil fuels needed by Americans today in order to make alternative energy sources the profitable kind of energy. You responded that "it is the policy of the Administration to move as aggressively as we can towards a clean energy future not only by investing in R&D into those clean energy sources but also in cutting back on the subsidies that we currently provide in a way that we don't provide to other sectors to fossil fuels." On this point, I would ask the following questions:

* With respect to the production incentives the Administration proposes to eliminate for domestic oil and gas companies, are any of these comparable to incentives provided to other capital-intensive industries?

* Are other American manufacturers generally eligible for Section 199?
* Is the deduction for Intangible Drilling Costs (IDC) comparable to the R&D deduction available to American businesses where results are unknown and mitigated by the deduction?
* Do similar incentives exist today for other forms of energy that are not fossil fuels?

I also asked if it was the policy of the Administration to raise the cost of producing domestic oil and gas, so as to make alternative energy sources more commercially competitive. You responded that you "did not think it was the Administration's intent, and that the goal is to move towards alternative sources of energy as rapidly as possible." However, in the Administration's explanation of its Fiscal Year 2011 revenue proposals ("Green Book"), the Administration provides the following explanation for each of the oil and gas tax provisions: "…To the extent the credit encourages overproduction of oil, it is detrimental to long-term energy security and is also inconsistent with the Administration's policy of reducing carbon emissions and encouraging the use of renewable energy sources." This statement appears to recognize that higher taxes on American producers will impact the supply of oil and gas produced domestically. Therefore:

* Is the Administration seeking to reduce the domestic production of oil and gas?
* What effect does restricted supply generally have on prices?
* Does the Administration expect, with enactment of its proposals, that fossil fuels will cost more or less to produce domestically?

Finally, I asked what we should do about the fact that by 2035, 78 percent of our energy needs will need to come from fossil fuels, and if this estimate is insignificant to the discussion. You responded that the Administration is "trying to do is move to a future in which that projection is not realized because we have developed renewable energy, we have invested in nuclear energy more aggressively than in the past, [and] we have expanded alternative forms of energy, which most experts believe is the way we need to go."

I would again highlight that the EIA predicts in its Annual Energy Outlook for 2010 that fossil fuels share of energy consumption falls from 84 percent of total U.S. energy demand in 2008 to 78 percent in 2035, reflecting the impact of new CAFE, ARRA, EIEA2008, EISA2007 and state provisions. Despite all of the mandates for renewable energy, EIA predicts we will still need 78 percent of our energy needs met with fossil fuels. With this is mind, I ask:

* Does the Administration propose to restrict Americans' access to the fossil fuels they need even when affordable and sensible alternatives are unavailable?

* Does increasing our use of renewable energy mean that American energy producers should be targeted, while foreign producers, many of which are state-owned, are not?

* Does the Administration believe Americans should pay higher prices for oil and gas in order to promote the expansion of renewable energy?

Thank you for appearing before the Senate Finance Committee on February 4, 2010, to discuss the President's FY2011 budget proposal. I look forward to your responses to these questions and I appreciate your attention on this matter.

Sincerely,

/s/

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