News of the Day:
Here Come the Biden Taxes
Editorial Board, The Wall Street Journal, March 31, 2021
So much for the illusion of cost-free spending blowouts. The bill for President Biden’s agenda is coming due, starting with Wednesday’s proposal for the largest corporate tax increase in decades. Can we finally drop the pretense that any of this is moderate or unifying or bipartisan?
Mr. Biden’s corporate tax increase alone is more than $1.5 trillion over 10 years, with another $1.5 trillion coming soon on individual income and investment. That’s about $300 billion a year, or 1.36% of GDP each year, assuming U.S. GDP of $22 trillion. Dan Clifton of Strategas Research Partners compares that to Bill Clinton’s 1993 tax increase of 0.4% of GDP, making the Biden increase the largest since 1968.
Mr. Biden’s corporate increase amounts to the restoration of the Obama-era corporate tax burden, only much more so. The GOP tax reform of 2017 was designed to fix a corporate tax system that was uncompetitive and convoluted. Companies paid taxes in countries where they earned the income, but then again if they returned the money to the U.S. Trillions of dollars piled up overseas. Remember the string of corporate “inversions” when CEOs moved their headquarters overseas?
Those inversions all but ended after 2017 as reform lowered the top corporate rate to 21% from 35% and moved the U.S. closer to a territorial tax system in which income is taxed where it is earned. Mr. Clifton calculates that companies repatriated $1.6 trillion from overseas to the U.S. from 2018-2020, which they deployed for a variety of useful economic purposes. The repatriation total three years before reform: only $495 billion.
Mr. Biden wants to raise the corporate rate back up to 28%, but that’s the least of his proposals. He also wants to add penalties that would make inversions punitive, and he’d impose a global minimum corporate tax of 21%. This would shoot the tax burden on U.S. companies back toward the top of the developed world list. At least nine major countries have cut their corporate tax rate since 2017, including France, Sweden, and the Netherlands.
The larger Biden goal is to end global tax competition, much as its ban on state tax cutting seeks to end income-tax competition among the 50 states. “The United States can lead the world to end the race to the bottom on corporate tax rates,” says the White House fact sheet. Mr. Biden says he wants “other countries to adopt strong minimum taxes on corporations” so nations like Ireland can no longer compete for capital with lower tax rates.
This has long been the dream of the French and Germans, working through the Organization for Economic Cooperation and Development. But even the OECD has been discussing a global minimum tax of about 12%, while Mr. Biden wants 21%. Only in Washington would the left punish American employers in the hope that the rest of the world will be as self-destructive.
All of this is in addition to the looming Biden tax increases on dividends, capital gains and other investment income. The lower 2017 corporate rate was intended to reduce the double taxation of corporate income that is built into the U.S. code. Mr. Clifton calculates that if the Biden plan becomes law the U.S. would have the highest overall tax burden on corporate income—62.7%—in the OECD.
The great political fakery here is that corporate taxes merely fall on CEOs and rich shareholders. But as everyone knows, corporations don’t really pay taxes. They are vehicles for collecting taxes that are ultimately paid by some combination of customers in higher prices, workers in lower wages, and shareholders in lower returns on investment.
U.S. oil production to start rising in second quarter
John Kemp, Reuters, April 1, 2021
U.S. crude oil production has stabilized and is set to start rising again, after the massive shock last year caused by the coronavirus epidemic and a volume war in the oil market between Saudi Arabia and Russia.
U.S. production was 11.1 million barrels per day (bpd) in January, essentially unchanged from December, according to data published by the U.S. Energy Information Administration on Wednesday.
Output was still down 1.7 million bpd compared with the same month a year earlier, and 1.8 million bpd from the cyclical peak in November 2019 (“Petroleum supply monthly”, EIA, March 31).
But production is no longer declining month on month as the industry has adapted and prices have rebounded after the crisis, creating a floor from which output is likely to start increasing by the middle of this year.
In the short term, output is likely to have declined again sharply in February because of the extreme cold that disrupted the Texas oilfields, and the interruption probably bled into the first part of March.
But these are short-term interruptions driven by adverse weather rather than prices and market conditions so they should reverse rapidly.
By April and certainly by May, U.S. production should start rising, slowly at first, then accelerating into the second half of the year (tmsnrt.rs/3whfxzO).
Experience shows there is a lag of around four or five months between changes in the price of WTI futures and drilling rates, and then another lag of up to six months between changes in drilling and changes in output.
Front-month WTI futures prices hit a low of less than $20 per barrel in April 2020, and the number of rigs drilling for oil hit a cyclical low four months later in August.
Based on previous experience, output should hit a cyclical low roughly six months later, putting the trough sometime in the first quarter of 2021.
Since April 2020, front-month futures prices have roughly tripled to $60 per barrel, while the number of active rigs has nearly doubled since August.
The drilling recovery is broadly following the same trajectory as after the two previous slumps ending in May 2016 and May 2009.
No U.S. LNG Export FIDs Predicted in 2021, Says Wood Mackenzie
Caroline Evans, LNG Insight, March 31, 2021
No U.S. liquefied natural gas (LNG) projects are expected to be sanctioned this year, marking the second year in a row developers may postpone moving ahead with facilities, according to Wood Mackenzie.
Consultants during a webcast last week said domestic final investment decisions (FID) were unlikely as sponsors struggle to secure long-term contracts.
“Generally, we’ve seen a slowdown in the pace of sales contract activity,” said Wood Mackenzie’s Alex Munton, principal analyst for North American LNG. “Pre-FID projects will continue to struggle to secure buyers, given the huge wave of LNG currently under construction globally. For that reason, we see a limited window to project FIDs in the U.S. for the next couple of years.”
Some projects may not survive, he said, noting Annova LNG’s decision to shelve its South Texas development.
Sanctioning LNG projects ground to a halt last year as the Covid-19 pandemic caused already sluggish gas demand to weaken further. U.S. sponsors, including Tellurian Inc., NextDecade Corp. and Sempra Energy, pushed project sanctions originally scheduled for 2020 into 2021.
Donlin owners reports strong results from 2020 drilling
Elwood Brehmer, Alaska Journal of Commerce, March 31, 2021
Despite a slow start, the largest drilling program in more than a decade at the massive Donlin Gold prospect ended with better-than-expected outcomes, according to final results published March 25 by the companies backing the work.
Donlin Gold contacted mineralization zones in both of the deposit areas the joint-venture is targeting; the results beat prior grade-thickness modeling with higher gold grades than initially predicted across much of the 23,000-meter, 85-hole drilling program the company conducted last year.
Mark Bristow, CEO of mining major Barrick Gold Corp., which owns half of the Donlin prospect, said in a prepared statement that the drilling results “represent a major step forward in improving the geological confidence in the Donlin project,” adding the information is an important step in improving the value of the world-scale project.
NOVAGold CEO Greg Lang said a near-surface contact in the northerly Lewis pit intersected nearly 18 meters of gold with an average grade of 10.5 grams per tonne with a nearly four-meter zone averaging 28 grams per tonne.
“On every level, the results of the largest drill program at Donlin Gold in 12 years have been incredibly rewarding for the partnership and all stakeholders. Since we released the initial results in August last year, the assays have consistently revealed higher-grade gold intersections,” Lang said.
Vancouver-based NOVAGold is Barrick’s partner in Donlin Gold LLC. Notable hits in the ACMA pit include a 22.6-meter interval with an average grade of 8.7 grams per tonne and a 10-meter subset with a grade of 15.5 grams per tonne.
“, the assay results from the 2020 drill program further strengthen our resolve and belief in the extraordinary nature of Donlin Gold and provide us with a wealth of knowledge to integrate into an updated geologic model,” Lang added.
He and Bristow also highlighted that the work was done without any confirmed COVID-19 cases at the remote Western Alaska camp. Company leaders restarted work in late May after suspending work for roughly six weeks last spring due to the pandemic when about 120 people were working at the camp.
Donlin Gold also secured several state permits and land-use approvals for an access road, fiber optic cable and other facilities last year.
As proposed, the open-pit mine in the upper Kuskokwim River drainage would be one of the world’s largest, producing more than 33 million ounces of gold over an initial 27-year life. A 315-mile natural gas pipeline from the west side of Cook Inlet would supply a power plant at the mine and fuel storage tanks would be built at Dutch Harbor, in addition to the very large-scale operation at the mine site.
State Division of Mining, Land and Water officials on March 11 published the second notice for Donlin’s water-rights applications, key permits that would allow the company to divert and use water from streams at the mine site in the upper Kuskokwim River drainage.
Donlin leaders said the 2020 program and additional drilling this year should lead to a final geologic model for the ore body; the company’s focus will then turn to an updated feasibility study and a final investment decision by the board of directors.
A short sale report issued against Donlin last May by J Capital Research argued company leaders have long inflated the economic viability of the project that is challenged by its remoteness on multiple fronts. The report also claims the $6.7 billion cost estimate to build Donlin is dated and artificially low.
Lang vehemently rebutted the claims in the report and NOVAGold sued J Capital over them June 29 in federal New York District Court. Shares of NOVAGold lost 22 percent of their value in the two weeks following the release of the J Capital report.
That suit is ongoing.
The $6.7 billion construction cost estimate was developed from the last feasibility study done on the project in 2011.
Donlin representatives have long said the project generally needs sustained, high gold prices because of the extensive network of support infrastructure that needs to be developed but have declined to specify what parameters they believe are needed to green-light development.
Spot gold prices have returned to the $1,700 per ounce range after briefly surpassing $2,000 per ounce last summer. The price band over roughly the last 18 months has been significantly higher than prior years when gold was hovering in the $1,200 to $1,400 per ounce range.
From the Washington Examiner, Daily on Energy:
OIL INDUSTRY MUM ON BIDEN JOBS PITCH: The oil and gas industry does not sound gung-ho about a provision of Biden’s green infrastructure plan to invest $16 billion to employ “hundreds of thousands” of fossil fuel workers to plug leaking wells.
The American Petroleum Institute did not directly comment on the specific proposal (which is admittedly sparse on details at this point), when asked for comment by Josh.
Instead, API’s Frank Macchiarola, senior vice president of policy and regulatory affairs, said generally that “our industry is fully committed to complying with existing state and federal requirements for abandoned wells and reclaiming wells sites, and we will continue to support efforts to plug these wells and further reduce methane emissions.”
The oil and gas industry has previously emphasized that of the 56,000 “verified” orphaned wells in the U.S., the vast majority (more than 50,000) are located on state and private lands. It’s unclear if a federal program to plug wells could deal with state and private lands.
Laura Daniel Davis, the Interior Department’s principal deputy assistant secretary of land and mineral management, said during a forum last week on Biden’s pause of new oil and gas leasing that a “partnership” to plug abandoned wells “is not limited to federal lands.”
BIDEN’S SALES JOB: Biden honed his jobs pitch during his remarks in Pittsburgh formally unveiling the infrastructure plan.
The package would put “hundreds of thousands of people to work,” Biden said, citing the potential for line workers, electricians, and laborers, to lay thousands of miles of transmission lines and, of course, oil and gas workers plugging orphan oil and gas wells at the “same exact rate that a union man or woman would get having dug that well in the first place.”
Among other big promises, Biden pledged his plan would “provide tax incentives and point of sale rebates to allow all Americans to afford clean electric vehicles.”
The Left’s “Climate Denier” Smear is Stale, False and Anti-Science
John Hart, C3 Solutions, March 31, 2021
The left-leaning Center for American Progress published a report this week called “Climate Deniers in the 117th Congress” that claims 109 representatives and 30 senators (52 percent of House Republicans and 60 percent of Senate Republicans) are “climate deniers.”
The “analysis” – a term I use here as loosely as possible – caught our attention because many of these so-called “climate deniers” appear on our Right Voices site where they describe the challenge of climate change as quite real and propose solutions. You can see these “deniers” here and here (note: CAP did not provide member quotes backing up their claims).
The “climate denier” charge is not new. In fact, it’s a franchise with many sequels, each of which gets less scary and more silly over time, like the Halloween films. The oil and gas and dark money subplots never change. But the number of villains seems to be shrinking, which makes CAP’s exercise feel even more contrived.
The most telling part about CAP’s “methodology” – a term, again, I use loosely – is that all Democrats are the good guys and only Republicans are the bad guys. CAP fails to quote a single climate scientist who describes the issue in such hyperbolic and hyper-partisan terms. In fact, most reputable climate scientists see this approach as anti-science and view the needless polarization of the topic as a threat to progress, consensus and durable solutions.
CAP undermines the scientific method by belittling people who asked hard questions as “deniers.” Being a skeptic doesn’t make someone a denier; it makes them a scientist. Science that is “settled” is by definition not science, but ideology masquerading as science. Even when there is consensus, science welcomes outliers and naysayers because inquiry makes the science stronger. What CAP offers is a self-indulgent cancel culture how-to and festival of political tribalism. Shouting down and bullying the opposition with sanctimonious name-calling is good for fundraising but bad for fact-finding and problem solving. When it comes to climate, progressives are pyromaniacs in a field of strawmen next to a forest.
CAP also stretches their definition of “denier” to capture those who describe the issue in global terms. Diminishing the role of China and India in emitting greenhouse gases is deeply anti-science but reinforces the Green New Deal’s central fantasy that if we enact this socialist manifesto a carbon curtain will descend from the heavens and block CO2 from entering our sovereign territory. Science, of course, tells us the flow of CO2 in the atmosphere is not impeded by national virtue-signaling, however earnest.
The reality is a supermajority of Republicans in the House and Senate believe the planet is warming and that humans are contributing, but they view climate alarmism as intellectually dishonest. (No, this is not based on a formal poll. My methodology is a testimonial. I’ve worked in conservative politics on and off Capitol Hill for almost 25 years and have some experience discerning what members are saying and not saying). For anyone more interested in solutions than rank partisanship, this is good news.
Yet, like the good guys in the Halloween films, the alarmists continue to compete with each other to offer the most ear-piercing scream. This has little to do with advancing climate solutions. Progressives are instead trying to titillate and entertain their base. Climate change is a third or fourth-tier issue. Progressives are more interested in using climate as a rallying cry (or shriek) to mobilize voters around their more important priorities like Medicare for All, universal basic income, and free college.
For all the left’s talk about existential threats nothing in their behavior suggests they believe their own doomsday rhetoric (i.e., they’re irrationally suspicious of nuclear energy and refuse to acknowledge fracking’s success in reducing greenhouse gas emission). Consider this fact: For the cost of Biden’s $1.9 trillion stimulus, we could have substantially replaced fossil fuel generation with nuclear energy but expanding Obamacare’ subsidies was the more pressing priority.
What’s really driving the left’s tired “climate denier” messaging project is old-fashioned political fear and resentment. Progressives view the growing center-right consensus on climate as an existential political threat. They view new entrants as intruders who must be branded as “deniers” before we expose the degree to which the left is lying to their political base. Conservatives are more serious and want to move faster than progressives who want to take the country on self-indulgent socialist detours.
Finally, CAP goes out of its way to belittle those who believe in “vague” market solutions and innovation as insufficiently devoted to the cause. They apparently omitted John Kerry’s recent statements in their analysis.