Raising Your Indirect Taxes

There are currently two pieces of tax legislation that have been introduced into Congress that will affect virtually every person in the United States. These new bills are very deceptive, since they tax the chemical and petroleum industry; however, what EPA and the sponsors of the bill do not mention is that these taxes will be passed back down to the consumer level. 

The sponsors of the bill also claim that this tax will create or save jobs and "punish the polluters" (the petroleum and chemical industries) -- especially in light of the BP oil spill. The original Superfund taxes expired on January 1, 1996. Since the tax expired, the Superfund trust fund balance has dwindled to virtually zero. The trust fund is currently funded by appropriation bills from Congress. 

On January 5, 2009, Representative Earl Blumenauer (D-OR) introduced the "Superfund Reinvestment Act of 2009" (H.R. 564). Representative Blumenauer stated when introducing the bill that "[t]his is a win for the environment, a win for local communities and a win for the economy." Rep. Blumenauer also claims that

[b]y renewing the tax, the industries that had a hand in creating the problem -- not taxpayers -- will once again be held accountable for cleaning it up. ... More importantly, we can put tens of thousands of people to work by investing in the restoration of these polluted sites.

Back in March 25, 2010, Senator Frank Lautenberg (D-NJ) introduced the "Polluter Pays Restoration Act (S.3164). On June 21, 2010, EPA Administrator Lisa Jackson forwarded to Congress the administration's proposed legislation to reinstate the Superfund Tax.

Both bills propose to return the original tax structure that expired in 1995, which is as follows:

■A petroleum tax of $0.097 per barrel (or 0.0023/gallon) or refined crude oil or refined oil products.

■ Taxes on 42 organic and inorganic chemical feedstocks ranging from $0.22-$4.87 per ton. 

■A corporate environmental income tax. The tax rate is 0.12% on the alternative minimum taxable income above $2 million.

■An imported chemical derivatives tax.

There are numerous problems with enacting this new Superfund tax:

■In terms of corporate taxes (state and federal), the United States (as of 2008) had the second-highest corporate tax rate among the developed countries. This proposed new tax will only hurt American business further by making the United States less competitive with other countries around the world.

The American Chemistry Council states that "in FY 2011, the costs of this tax to the chemical industry will be $328 million and increasing to $2.8 billion over the next ten year period." They also state that "[t]he chemistry industry is already facing slumping demand from the recession, continued high costs for energy, intense foreign competition, and razor-thin margins."

The American Petroleum Institute (API) states that the Superfund tax is not needed since in more than 70% of the cleanups, the responsible parties (not EPA) actually paid for the cleanup, not the Superfund Trust Fund. In addition, they claim that the petroleum industry paid $7.5 billion, or 57% of the taxes, into the fund, but the industry was responsible for only 10% of the liability.

■The chemical and petroleum industries are being punished for the past sins of companies. As stated in Administrator Jackson's letter to Congress, "This draft legislation, by reinstating the Superfund taxes, would ensure that parties who benefit from the manufacture or sale of substances commonly found in contaminated sites contribute to the cost of clean-up." This is not the case, since most Superfund sites are cleaned up by the responsible parties. Representative Blumenauer's claim that enacting the Superfund tax would protect communities, create jobs, and improve the environment and community health is misleading. The EPA has stated that around 70% of all site cleanups are paid for the Potential Responsible Party (PRP). The remainder of the sites are paid from taxpayer money that Congress appropriates. In other words, Congress, which gives out the funding, determines the speed at which cleanups are performed.

■Since chemicals and petroleum-based products are purchased in some form by consumers, one would expect to see an increase in prices, especially in the area of energy costs. It is estimated that some sectors in the chemical and petroleum industries will not be globally competitive. In addition, an excise tax on chlorine would increase the cost of disinfecting water. Taxes on chlorine and ammonia would offset any economic return of sale, making those chemicals non-competitive on a global basis. This could endanger jobs in these and other noncompetitive sectors.

■The bill defined a "large company" as one for which the alternative minimum taxable income is greater that $2 million per year. This bill will affect all but very small companies.

National Center for Policy Analysis (NCPA) Senior Fellow H. Sterling Burnett believes that the tax will hurt already-wounded companies and irreparably damage the economy. "The Superfund tax targets a petrochemical industry already struggling to reestablish itself," said Burnett. "While some of the proposed tax revenue is earmarked to help the Gulf Coast recover from Hurricanes Katrina and Rita, in reality, the tax will likely slow economic growth and retard the rebuilding process."

In addition, "[i]nstead of reinstating damaging taxes and allowing the inefficiencies of Superfund to continue, we need to reassess what has arguably been the EPA's most costly, yet least successful program," said Burnett. "It's time to throw Superfund on the scrapheap and establish new, creative solutions for the clean up of sites that pose a true threat to human health."

■Since EPA Superfund cleanups are typically not "shovel-ready," any jobs to be gained will not be immediate and will be in a long-term time frame. Thus, any claims about making or saving a job in the short term is false.

■Another negative aspect of this bill is that it has a ten-year time period during which it will be in effect. The tentative start of this bill is in 2011 (assuming passage in the House and the Senate).

The new Superfund bills that are in Congress right now are important to the Obama administration and the environmental activist legislators in Congress. In the eyes of the administration and other legislators, they would help reduce the deficit and help put a strain on those industries which these players deem to be the cause of environmental pollution problems.

In light of the lackluster condition that the economy is in right now, Congress should be considering ways to help the petroleum and chemical industries become more competitive in the global marketplace. This will not occur until legislators with environmentalist sympathies think more about the economy instead of the progression of their green agendas.

Mark Morris works in the chemical industry.
There are currently two pieces of tax legislation that have been introduced into Congress that will affect virtually every person in the United States. These new bills are very deceptive, since they tax the chemical and petroleum industry; however, what EPA and the sponsors of the bill do not mention is that these taxes will be passed back down to the consumer level. 

The sponsors of the bill also claim that this tax will create or save jobs and "punish the polluters" (the petroleum and chemical industries) -- especially in light of the BP oil spill. The original Superfund taxes expired on January 1, 1996. Since the tax expired, the Superfund trust fund balance has dwindled to virtually zero. The trust fund is currently funded by appropriation bills from Congress. 

On January 5, 2009, Representative Earl Blumenauer (D-OR) introduced the "Superfund Reinvestment Act of 2009" (H.R. 564). Representative Blumenauer stated when introducing the bill that "[t]his is a win for the environment, a win for local communities and a win for the economy." Rep. Blumenauer also claims that

[b]y renewing the tax, the industries that had a hand in creating the problem -- not taxpayers -- will once again be held accountable for cleaning it up. ... More importantly, we can put tens of thousands of people to work by investing in the restoration of these polluted sites.

Back in March 25, 2010, Senator Frank Lautenberg (D-NJ) introduced the "Polluter Pays Restoration Act (S.3164). On June 21, 2010, EPA Administrator Lisa Jackson forwarded to Congress the administration's proposed legislation to reinstate the Superfund Tax.

Both bills propose to return the original tax structure that expired in 1995, which is as follows:

■A petroleum tax of $0.097 per barrel (or 0.0023/gallon) or refined crude oil or refined oil products.

■ Taxes on 42 organic and inorganic chemical feedstocks ranging from $0.22-$4.87 per ton. 

■A corporate environmental income tax. The tax rate is 0.12% on the alternative minimum taxable income above $2 million.

■An imported chemical derivatives tax.

There are numerous problems with enacting this new Superfund tax:

■In terms of corporate taxes (state and federal), the United States (as of 2008) had the second-highest corporate tax rate among the developed countries. This proposed new tax will only hurt American business further by making the United States less competitive with other countries around the world.

The American Chemistry Council states that "in FY 2011, the costs of this tax to the chemical industry will be $328 million and increasing to $2.8 billion over the next ten year period." They also state that "[t]he chemistry industry is already facing slumping demand from the recession, continued high costs for energy, intense foreign competition, and razor-thin margins."

The American Petroleum Institute (API) states that the Superfund tax is not needed since in more than 70% of the cleanups, the responsible parties (not EPA) actually paid for the cleanup, not the Superfund Trust Fund. In addition, they claim that the petroleum industry paid $7.5 billion, or 57% of the taxes, into the fund, but the industry was responsible for only 10% of the liability.

■The chemical and petroleum industries are being punished for the past sins of companies. As stated in Administrator Jackson's letter to Congress, "This draft legislation, by reinstating the Superfund taxes, would ensure that parties who benefit from the manufacture or sale of substances commonly found in contaminated sites contribute to the cost of clean-up." This is not the case, since most Superfund sites are cleaned up by the responsible parties. Representative Blumenauer's claim that enacting the Superfund tax would protect communities, create jobs, and improve the environment and community health is misleading. The EPA has stated that around 70% of all site cleanups are paid for the Potential Responsible Party (PRP). The remainder of the sites are paid from taxpayer money that Congress appropriates. In other words, Congress, which gives out the funding, determines the speed at which cleanups are performed.

■Since chemicals and petroleum-based products are purchased in some form by consumers, one would expect to see an increase in prices, especially in the area of energy costs. It is estimated that some sectors in the chemical and petroleum industries will not be globally competitive. In addition, an excise tax on chlorine would increase the cost of disinfecting water. Taxes on chlorine and ammonia would offset any economic return of sale, making those chemicals non-competitive on a global basis. This could endanger jobs in these and other noncompetitive sectors.

■The bill defined a "large company" as one for which the alternative minimum taxable income is greater that $2 million per year. This bill will affect all but very small companies.

National Center for Policy Analysis (NCPA) Senior Fellow H. Sterling Burnett believes that the tax will hurt already-wounded companies and irreparably damage the economy. "The Superfund tax targets a petrochemical industry already struggling to reestablish itself," said Burnett. "While some of the proposed tax revenue is earmarked to help the Gulf Coast recover from Hurricanes Katrina and Rita, in reality, the tax will likely slow economic growth and retard the rebuilding process."

In addition, "[i]nstead of reinstating damaging taxes and allowing the inefficiencies of Superfund to continue, we need to reassess what has arguably been the EPA's most costly, yet least successful program," said Burnett. "It's time to throw Superfund on the scrapheap and establish new, creative solutions for the clean up of sites that pose a true threat to human health."

■Since EPA Superfund cleanups are typically not "shovel-ready," any jobs to be gained will not be immediate and will be in a long-term time frame. Thus, any claims about making or saving a job in the short term is false.

■Another negative aspect of this bill is that it has a ten-year time period during which it will be in effect. The tentative start of this bill is in 2011 (assuming passage in the House and the Senate).

The new Superfund bills that are in Congress right now are important to the Obama administration and the environmental activist legislators in Congress. In the eyes of the administration and other legislators, they would help reduce the deficit and help put a strain on those industries which these players deem to be the cause of environmental pollution problems.

In light of the lackluster condition that the economy is in right now, Congress should be considering ways to help the petroleum and chemical industries become more competitive in the global marketplace. This will not occur until legislators with environmentalist sympathies think more about the economy instead of the progression of their green agendas.

Mark Morris works in the chemical industry.