Oil tax reform may play big role in national debt discussions

It’s been a slow week on Capitol Hill with lawmakers out for Thanksgiving. But talks are ongoing between Congressional leaders and the White House about working to stave off the fiscal cliff … and establishing the frame work for a deficit reduction package.

Tax reform could play a significant part of the debt package, and the oil and gas industry is making sure it keeps its tax breaks.

President Barack Obama campaigned on a promise of fairness in the tax code.

Speaking in the White House Rose Garden in March, Mr. Obama said there was no reason oil companies with record profits should receive billions of dollars in subsidies paid for by everyday citizens.

“Instead of taxpayer giveaways to an industry that’s never been more profitable, we should be using that money to double down on investments in clean energy technologies that have never been more promising.”

But with the country facing the combination of spectrum-wide tax increases and across the board cuts to government spending, it’s unlikely any money saved from ending oil subsidies would go to more investments in wind, solar and biomass. It’d likely go to lowering the nation’s debt.

There’s a lobbying frenzy going on in Washington and in Congressional districts across the country. The industry wants to preserve specific, beneficial tax breaks. U.S. Senator Mark Begich says he met with representatives from Shell and BP last time he was in Alaska, and he met with the American Petroleum Institute earlier this week.

“I get it. There are some people who don’t like the oil and gas industry. They paid over 140 billion dollars in taxes last year. I can point to some industries that pay very little taxes and get a bunch of credits,” Begich said.

Some of that 140 billion was certainly passed on to consumers because it came from excise taxes.

Senator Begich says if the government tackles the debt through tax reform, there’s no reason to single out just one industry.

And that’s the argument Stephen Comstock is making. He works on tax policy at the American Petroleum Institute.

“You should not take this time to have tax raises on one particular industry,” Comstock said.

Comstock says API is willing to sit down and discuss its tax preferences when the government takes on true, fundamental tax reform … but not right now.

“We aren’t in any way shape or form offering anything at this point,” Comstock said.

Many think Congress will work to overhaul the tax code, for both citizens and corporations in the spring. And when it does, Daniel Weiss has his eyes on certain deductions used by major oil producers. Weiss is a senior fellow at the Center for American Progress Action Fund.

He says the subsidy for intangible drilling benefits has been on the books since 1916. It allows oil companies to write off the cost of labor upfront – instead of over the lifespan of the well.

“Companies that don’t drill have to take deductions for their expenses over time rather than getting those deductions all at once. Getting them all at once is like getting a lump sum instead of an allowance every week,” Weiss said.

Not all oil companies qualify for the various subsidies, and it’s not the biggest producers who necessarily benefit the most.

Eric Toder is a co-director of the Tax Policy Center. He also served as an undersecretary of the Treasury. He says that independent producers, meaning not the integrated companies that refine and market products, fare better than the majors.

Independent producers are worried about losing what’s known as the percentage depletion allowance. That allows companies to deduct fifteen percent of gross revenue – not cost – of a well. Opponents say the subsidy is worth most when oil prices – and profits – are high.

“You can deduct, right off the top, 15% of your gross revenues. So that deduction could exceed the amount you’ve spent on developing that property over time,” Toder said.

Toder says the depletion allowance and the subsidy for intangible drilling benefits actually don’t amount to much money.

“These provisions are not that expensive in terms of their overall revenue loss to the treasury. You’re talking about things that cost a billion a year roughly,” Toder said.

That’s not much money in Washington terms. But it’s enough to keep both the major and minor producers lobbying hard.

 

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