Skip to comments.Senate tax plan spares big oil industry deduction
Posted on 01/03/2014 5:14:01 AM PST by thackney
When Sen. Max Baucus launched his opening volley against oil and gas industry tax breaks, he proposed eliminating a host of their long-cherished deductions.
The Montana Democrat offered a plan to bar companies from immediately writing off intangible drilling costs, block taxpayers from claiming a percentage depletion for oil and natural gas wells, and force U.S. firms to abandon using the last in first out accounting technique to value stockpiles.
But Baucus left one big deduction out of the mix. Spared from the Finance Committee chairmans plans is the Sec. 199 domestic manufacturing deduction, which is broadly claimed by a range of industries, from automakers and movie producers to newspaper publishers and, yes, oil companies. It was created in 2004 to encourage domestic job creation.
Most manufacturers can claim a deduction of up to 9 percent, applied to net income from domestic manufacturing activities. The oil and gas industry, which is categorized as a manufacturing industry for tax purposes, is limited to 6 percent.
But President Barack Obama has repeatedly called on Congress to do away with the deduction altogether for oil and gas firms. And a Sec. 199 repeal has been included in some Democrats plans to axe tax breaks for the biggest U.S. oil companies.
It is unclear why Baucus decided not to target the deduction at least for oil and gas firms even as he proposed doing away with so many others.
The National Taxpayers Union has run print advertisements warning against singling out Americas energy companies by denying them the Sec. 199 deduction. Such a move would penalize a major industry that is contributing strongly to Americas economic recovery and creating thousands of new jobs, the NTU says.
The oil industrys leading trade group, the American Petroleum Institute, says eliminating the manufacturing deduction for the oil and natural gas industry will have the harmful effect of hurting American energy workers and their contributions to our economic recovery and make it more difficult for companies to finance expensive domestic products.
But critics say the provision is rightly limited to companies who could easily move their manufacturing facilities outside U.S. borders, since the goal is fostering U.S. jobs.
Daniel Weiss, with the Center for American Progress, has argued that unlike other manufacturers, oil and gas companies working in the United States are fairly tethered to the hydrocarbons under American soil. This provision was designed to encourage domestic manufacturers to keep their facilities and jobs in the United States, he says, but it is impossible to move U.S. oil fields to other nations.
In a report to lawmakers, the non-partisan Congressional Research Service notes that the oil and gas industry differs from traditional factory manufacturing in a number of ways:
The production of petroleum products at a refinery is only indirectly related to the level of employment. This implies that if wage costs go down due to the tax deduction, there is less chance that the result will be increased output due to higher employment. Even if employment did increase, it would have little effect on national employment levels due to the capital-intensive nature of the industry. The Bureau of Labor Statistics reports that oil and natural gas extraction industries employed approximately 185,500 workers in December 2011, of which about 105,700 were classified as production workers.
Weiss said that while Baucus proposal would axe $46 billion in oil industry tax breaks, he also should have taken aim at the domestic manufacturing deduction, as well as dual-capacity taxpayer rules that allow companies to deduct what they pay foreign governments in royalties for oil produced overseas. Another possible target left out of Baucus plans: an accelerated two-year time period for writing off the costs of geological and geophysical expenses tied with hunting for oil and gas.
Although lawmakers are looking to rewrite the U.S. tax code as early as this year, President Barack Obamas decision to nominate Baucus as his next ambassador to China may change the timeline.
A coalition of more than a dozen oil and gas industry groups sent a letter to Baucus last month arguing that his plan for extending depreciation of drilling and other expenses would especially affect the capital-intensive oil business and divert cash away from future domestic investment.
Correct. Taxes are on profits, not total revenue. If they have to spend $90 for every $100 in sales, the amount taxed should be $10, just like every other business. It is still an expense.
To penalize the oil/gas industry over other businesses doesn’t make any sense. Just like it doesn’t make sense to selectively subsidize select businesses.
To steal 6 billion over 10 years (600 million a year) from veteran retirements while not touching 46 billion in oil industry tax breaks is to take from those who've shed blood for you and leave untouched those to whom you owe nothing.
The aggravating thing is that the O & G industry is one of the few that actually pays taxes to the federal treasury. Almost none of Barry Soetoro’s corporate cronies (GE, Solyndra, etc.) pay any tax at all.
When he says tax breaks, he doesn't mean the oil industry is getting any real breaks. They actually pay more tax than other industries, as this article discusses. All industries need to be treated equally, not special favors or penalties depending on which government official got a campaign donation. Taxes for business are on profits. If they spend dollars to hire a rig or a trucking companies, those companies pays tax on their profits. Otherwise we get double, triple, etc taxation.
I’m not trying to be difficult. The soldiers are making it possible for the oil companies to have the free market to make their profits.
Soldier promises come first.
Now, I’d far rather they cancel child tax credits for illegals or other items more egregious than tax breaks for businesses.
My point is that they put soldiers first in line to get assaulted by Congress rather than last in line. These other items should get hit before the military does, to include business tax breaks.
Bad analogy. Two different things altogether. Now, if you want to talk about cutting veterans' benefits while disability, food stamps, and welfare explode, you'd have my agreement.
I don’t consider it a bad idea to take away someone else’s tax break before you take away a veteran’s pension that you promised to him.
Tax breaks are not promises.
Understood. Neither am I. Hope it comes across that way.
Soldier promises come first.
My opinion, it should not even be an option to take away from them. Totally unrelated subject to the taxing discussion. We don't operate under a balance budget.
My point of view is oil/gas should not be uniquely penalized, because they are oil/gas. The should operate under the same rules all business in the US operate under. Expenses are deducted from revenue so that taxes are on profits, just like everybody else.
You appear to be operating under the idea oil/gas companies are getting tax breaks that other companies do not. That is false. All companies deduct expenses because taxes are on profits, not total dollar stream.
In reality, oil/gas already pay a higher rate because they are only allowed to deduct some of the expenses other companies are deducting.
I’m operating under the assumption that taking away from veterans, who’ve fought your wars and been promised a certain compensation, before you take away from anyone else, including oil companies, is immoral.
Look. It's a bad argument. Won't convince anyone. That was my point.
There are effective arguments for your point.
As if the tax code and the budget are unconnected.