Under President Obama’s new budget plan, one proposed new source of revenue is from taxes and royalties from oil, natural gas, and coal companies. Currently there are many tax breaks that oil, gas, and coal companies can take advantage of. One tax break, mentioned by the Wall Street Journal is the Section 199 deduction. According to the IRS, this incentive allows (mainly) energy companies to deduct from 6 to 9% of qualifying income. President Obama has asked Congress to repeal the tax breaks for oil, natural gas and coal companies in an effort to raise revenue for his proposed budget. The second part of the proposed plan aims at increasing royalties that are gathered from energy production by private companies on federal lands and in federal waters.

What’s the reasoning for removing tax breaks for the above-mentioned energy companies? Well, if these tax breaks were removed, 44 billion dollars of revenue would be raised over the course of ten years. The increase in royalties would lead to 2.5 billion dollars in increased revenue in the same time period. 46.5 billion dollars would put only a small dent in the budget deficit, but it’s a start. President Obama plans to use 2 billion dollars from all the revenue generated from eliminating tax breaks and increasing royalties to fund clean-energy research.

With removed tax breaks, it is quite likely that oil, natural gas, and coal companies will increase the prices they charge consumers in an effort to maintain after-tax profit margins. If that is the case, then consumers of electricity, heating, and gasoline will be negatively affected in the short-run. However, I believe there will be a positive long-term impact. Non-renewable energy companies may find that they need to diversify into renewable energies as tax obligations increase. Also, if consumers are in fact negatively impacted by higher prices, they may use less energy by driving less, making their homes more energy efficient, and investing in higher-MPG vehicles. This, of course, is all speculation.

What is known for sure is that the money for the proposed budget has to come from somewhere and the proposed actions will help the United States move towards cleaner energy and less dependence on foreign oil.

Oil and Coal companies should receive no subsidies. They should, actually, be taxed more heavily because they produce negative externalities: pollution. Natural Gas is the better, cleaner alternative to the above-mentioned fossil fuels, but it is still a non-renewable source of energy.