|There is one thing about our economy that everyone seems to agree about–things are looking up, but don’t be too optimistic.President Barack Obama is calling it “stability, not security” in his current rounds of economic talks. Recent Wall Street Journal headlines echo this “glass half full, glass half empty” assessment, noting that while housing is rebounding, first-time home owners are not. In other areas, the Journal notes that “forecasts trimmed as spending slows.”
Earlier this month, the McKinsey Global Institute came out with a study identifying five “catalysts” to shift the economy into a higher gear, increase annual GDP, and create new jobs. In Pennsylvania, we have seen the beginning effects of these catalysts, in particular energy and trade.
The big winner for the Commonwealth is energy, specifically shale gas and oil. The report shows just how much this industry can help our economy – or could dampen any improvement if we make the wrong economic policy decisions.
Nationally, shale gas and oil has the potential to boost our nation’s gross domestic product by between $380 billion and $690 billion. Those are huge numbers and represent almost four percent of our estimated GDP in 2020.
The second catalyst, according to McKinsey, is trade growth, and that is another place where energy can make a substantial contribution. Right now, there are 19 applicants waiting on federal government agencies to provide licenses necessary for liquefied natural gas (LNG) export terminals. Due to discoveries such as the Marcellus Shale under much of Pennsylvania, and breakthroughs in technology to extract natural gas and oil, we have a special opportunity to export natural gas. This could actually turn the economic tables, making the United States a net energy exporter for the first time in decades. Already the Marcellus Shale and related industries are responsible for 239,474 jobs in Pennsylvania, according to our state Department of Labor and Industry.
This is the upside. Unfortunately, the wrong economic decisions could endanger these opportunities. For example, the current Administration has only approved one LNG export terminal application. Without the capability of exporting LNG through multiple terminals, we cannot expect to reap the new jobs and economic advantages of expanding our trade. We need to be nimble and move much more quickly to approve applications that have been waiting for months, if not years.
Further, continually raising taxes on energy companies will hamper economic and job growth. Oil and gas companies already pay some of the highest tax rates in this country. Yet the Administration is calling for new ways to raise taxes on energy companies. For example, it wants to take away the ability for energy companies to claim tax credits (available to all other industries) for creating new manufacturing jobs, and it wants to double tax these companies on their foreign earnings.
Not every industry has the capability to make such a substantial impact on our economy. When an industry, such as energy, does have the potential, we need to encourage it. The McKinsey report makes very clear the upside, game-changing opportunities of shale gas and oil production. We would do well to encourage such a stimulus.
Dr. Charles E. Greenawalt II is the senior fellow of The Susquehanna Valley Center for Public Policy and Clifford Frick is the Administrative Director.
(Nothing contained here should be considered as an attempt to aid or hinder the passage of any legislation before the General Assembly.)