INHOFE: MENENDEZ BILL TAX INCREASES CONTINUE OBAMA'S WAR ON FOSSIL FUELS
WASHINGTON, D.C. - During a speech on the Senate floor, U.S. Sen. Jim Inhofe (R-Okla.) today blasted the Repeal Big Oil Tax Subsidies Act (S.2204) by U.S. Sen. Robert Menendez (D-N.J.) as a continuation of President Obama's ongoing war against fossil fuels. With gas prices nationwide averaging $3.90 per gallon, Senate Democrats will move forward with consideration of the bill that even its sponsor admits will not reduce gas prices.
"While the President was going around the country last week trying to convince everyone that he's actually pro-oil and gas, he laid the groundwork for Senators Menendez and Reid to push a bill through the Senate to raise taxes on the industry and gas prices on American families," said Inhofe. "Since taking office, President Obama has waged a war on fossil fuels, and nowhere has the President been more resolute in stopping oil and gas development than in his tax proposals.
"This proposal would either modify or outright cancel the Section 199 Manufacturer's Tax Deduction (Sec. 199), Intangible Drilling Costs (IDC) expensing, Percentage Depletion, Tertiary Injectants expensing, and the Foreign tax credits provision used by major integrated oil and gas firms. These tax provisions are in line with standard accounting principles; they are not subsidies. Doing away with these provisions is nothing more than a tax hike that will raise gas prices, increase our dependence on foreign oil, and cost jobs."
Inhofe said the President is also killing oil and gas by opposing the Keystone Pipeline, trying to stop hydraulic fracturing, placing millions of acres of federal lands off limits to exploration, and preventing or limiting oil and gas development on the East and West coasts, the Gulf, and Alaska.
- Section 199 was added to the tax code in 2004. It was designed to support domestic manufacturing, and it did this by providing a 9 percent tax deduction for manufacturers, effectively lowering their tax rate from 35 percent to 32 percent.
- The provision was phased in between 2005-2010, but in 2008, the oil and gas industry was singled out so that it could only claim a portion of the deduction.· The Menendez proposal would repeal Sec. 199 for major integrated oil companies.
- In the President's budget, a similar proposal was scored as an $11.6 billion tax hike.
- The Section 199 tax deduction is available to all other companies that creates or manufactures goods in the United States.
Intangible Drilling Costs (IDCs)
- Intangible Drilling Costs are the expenses oil and gas firms incur when they drill and prepare new wells. These costs often total between 60 and 80 percent of a well's cost. They are generally not recoverable and include things like site preparation, labor, and design.
- The expensing of Intangible Drilling Costs is firmly grounded in the basic accounting principle of cost recovery. It states that businesses should be allowed to write off their expenses from the revenue they earn to account for the cost of doing business.
- The IDC deduction has been available since 1913, and since most of the costs associated with the preparation of a new well would independently be classified as an immediate expense, the expensing of IDCs make sense.
- Every company - regardless of whether it it's an oil and gas firm - is allowed to recover costs associated with their investments and business operations.
- A similar proposal in the President's budget scored as a $13.9 billion tax increase.
- Together, the repeal of Section 199 and IDCs could compromise 10 percent of America's oil and gas production capacity by 2017. This translates into a potential loss of 59,000 jobs, 600,000 barrels of oil per day in domestic production and the loss of $15 billion in capital expenditures in 2012 and potentially $130 billion over the next ten years.
- Since 1926, small producers and millions of royalty owners have had the option to utilize percentage depletion to both simplify their tax filing and to account for the decline in the value of the minerals produced from their properties.
- Current law allows small producers to take a 15 percent deduction of their gross income from a given producing property in lieu of a complicated depreciation deduction.
- This tax provision is particularly important for the production from America's nearly 700,000 low-volume marginal wells.
- If we were to fully repeal percentage depletion, it would increase taxes on the industry by $11.5 billion.
Expensing of Tertiary Injectants
- Mature oil and gas wells can often have their economic life extended with the injection of a tertiary input, such as carbon dioxide. These injectants help maintain the pressure of wells, which keeps the oil flowing.
- By forcing the capitalization of tertiary injectant costs, many of the nation's enhanced oil recovery (EOR) projects would be jeopardized, which would make us more reliant on foreign oil.
- This tax change was also included in the President's budget, and it would raise taxes by about $100 million.
Modification of Foreign Tax Credits for Dual Capacity Taxpayers
- The United States is one of the only developed countries in the world that has a "global" corporate tax system.
- This means that the IRS and Uncle Sam reach all over the world to tax profits made by U.S. companies outside of our borders.
- When you combine this with our 35 percent corporate tax rate, which is nearly the highest on earth, our corporate tax policies are the worst in the world.
- Senator Menendez' bill makes this awful policy even worse by limiting the ability of major integrated oil firms to account for the taxes they pay in other countries when they calculate what they owe the United States.
- The President made a similar proposal in his budget this year, and if enacted it would raise taxes by about $10 billion over ten years.