U.S. Government Budget Deficit Soaring

Based on monthly reports from the Treasury Department U.S. government outlays have been exceeding total government receipts since the beginning of the Fiscal 2009 period starting October 2008 through the most recent month of May 2009. Federal receipts from income taxes, social security and other sources are running 18% lower than the same period for Fiscal 2008. Our current high unemployment is contributing to the loss of tax revenue. Government spending or outlays for this same period are running 20% higher than Fiscal 2008 resulting in a projected deficit in Fiscal 2009 in excess of 1.5 trillion dollars or almost 1.0 trillion dollars more than the deficit of almost 0.5 trillion dollars in Fiscal 2008. The 1.5 trillion deficit is my estimate based a projection of the remaining 4 months using trend extrapolation. The Government’s estimate is in excess of 1.8 trillion dollars based on Budget estimates released by the Office of Management and Budget on May 7, 2009.

No matter what number you use, the red ink is flowing and the deficit is at least 1.0 trillion dollars more then Fiscal 2008 deficit or more than 50% of the total 2008 outlays. This growing gap between government spending and income at a time when tax revenues are likely to decline further is troubling.  The Treasury routinely sells billions of dollars worth of debt paper to fund the federal budget deficit. It is expected that almost $2 trillion worth of new debt will be issued this year. This has implications for higher interest rates which will hinder recovery in the housing industry. I will continue to track these numbers on a monthly basis and keep you informed.

Obama Punishes Oil and Natural Gas Industry

U.S. President Barack H. Obama released his final fiscal 2010 federal budget on May 7th. It included $32 billion of new oil and gas taxes over a period of 9 years. Collections will begin in fiscal 2011.  The tax changes include: the elimination of a tax deduction available to other U.S. manufacturers, repeal of the percentage depletion allowance, new excise tax on new Gulf of Mexico production, repeal of expensing intangible drilling costs, repeal of enhanced oil recovery project injectant costs, plus others.

The budget also establishes additional fees on non-producing leases and additional permit fees. Lobbyists report that all of these taxes will be passed by congress with the possible exception of the excise tax on new Gulf of Mexico production.

According to the President of the Independent Petroleum Association of America, Barry Russell, “The new taxes and other provisions in the budget will make it more difficult to develop domestic energy. The Budget is in direct conflict with the goal of reducing our reliance on foreign oil.”

President R. Skip Horvath of the Natural Gas Supply Association says Obama’s budget is bad news for America’s consumers and worse news for American jobs. He says four million Americans depend on domestic gas for their livelihoods. He says a 10% decrease in direct natural gas jobs could wipe out the beneficial effects of a doubling of wind and solar jobs.

Horvath said, “Tax policies directly impact the decisions that are made regarding drilling, especially for smaller companies. More importantly, over 80% of the natural gas in the U.S. is actually produced in this country. We are troubled that this administration has such a basic misunderstanding of how domestic gas markets will be impacted. “

Commentary:  It appears to me that the Obama Administration and the Democratically controlled Congress is punishing the oil and gas industry. To fund some of their vast government programs they need new tax revenues and why not the oil and gas industry. They have been demonizing these companies for years. In 2007, Exxon paid a 41% corporate tax rate on taxable income. I guess 41% is not high enough. Why don’t we increase it to 90% and wipe out all of our domestic oil and gas production.