Marathon Pundit: Obama's elimination of dual capacity tax credit will cost thousands of American jobs

In his 2011 proposed budget, President Obama is suggesting that the "dual capacity" tax credit for American corporations operating overseas be eliminated.

What's dual capacity? It works as it did when I owned an international mutual fund--I paid taxes on profits I made, and the fund sent me a 1099-DIV form which allowed me do deduct that amount on my federal income tax return.

The U.S. is the only company that taxes foreign revenues--dual capacity allows domestic firms, such as oil companies, compete on a level playing field with foreign firms.

More from a Wall Street Journal op-ed (paid subscription required) by Joseph R. Mason:

Mr. Obama's budget, as well as the bills under consideration in the House and Senate, would further hurt the energy sector by excluding it from a critical tax deduction, known as Section 199, which allows firms to deduct a percentage of domestic production activity each year. Enacted in 2004 as part of the American Jobs Creation Act, Section 199 was meant to encourage employment across the entire manufacturing sector, including oil and gas. Under Mr. Obama's budget, however, Section 199 would no longer apply to oil and gas companies.

According to analysis conducted for the Institute for Energy Research by the economist Andrew Chamberlain, this repeal would cause the U.S. to increase its reliance on imported oil from politically unstable nations, cost the economy 637,000 jobs, and reduce household earnings by nearly $35 billion over the next decade. As the Congressional Research Service recently put it, repeal would "adversely affect domestic production and increase imports."

The political rhetoric about the BP disaster could doom the nation's energy industry and take thousands of jobs with it. Already the government's approach toward the energy sector is worrying investors and executives, driving rigs from the Gulf of Mexico to locations in Africa and the Middle East that don't maintain the environmental safeguards present in the U.S.

The president and Congress must consider the long-term economic and security consequences of their energy policies. Fossil fuels continue to power the U.S. economy and energy companies have a decades-long record of safely extracting resources from the Gulf of Mexico . The BP spill is a catastrophe, but short-sighted policies that have nothing to do with drilling safety could have much worse consequences for our nation as a whole.

Besides the tax credit issue, Mason also writes that if Obama's energy exploration moratorium in the Gulf of Mexico lasts more than a year, which many experts are predicting, it could cost 36,000 American jobs. If the moratorium becomes permanenent--as many as 400,000 positions could vanish.

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