FACTS on the New Tax Proposals On The Energy Industries

Real quick and simple.

Hey folks,

Here are some annoying facts that the Obama Regime and the dutiful Mainstream Media do NOT want you to know.

Provisions Increasing Taxes on the Oil and Natural Gas Industry Briefing Paper– 7.13.10

Some in Congress want to increase federal revenue by repealing or modifying several long-standing, legitimate tax policies affecting the U.S. oil and natural gas industry. At a time of high unemployment when we are struggling to recover from a recession, these proposals will threaten U.S. jobs and weaken U.S.-based companies.

Repealing the domestic jobs manufacturing deduction for only oil and gas activities Congress enacted section 199 of the I.R.C. in 2004 to encourage all U.S. manufacturers and producers to invest, expand and create jobs in the United States. The oil and natural gas industry creates high-paying professional and union positions held by geologists, refinery workers, rig builders and others.

Proposals to repeal section 199 just for oil and natural gas activities could endanger some of the 2.1 million U.S. oil and natural gas worker jobs and 7.1 million U.S. goods and services jobs supported by the industry. There is no defensible tax policy basis for treating oil and natural gas activities differently from any other manufacturing or production activities.

Modifying the provisions that prevent double taxation of US companies ("dual capacity") The U.S. wins when its businesses can compete in the global marketplace. Our tax rules have, for almost a century, allowed companies to offset U.S. income tax on foreign earnings with income taxes paid on those earnings abroad—avoiding a double tax on the company’s foreign earnings.

Currently, the foreign tax credit enables all U.S. companies to operate and produce goods and services in other countries without taxing profits twice—once by the host country and once again by the home country. This allows U.S. companies to have a level playing field among foreign competitors. Proposals are being considered to restrict this long-standing principle—and possibly just for the oil and natural gas industry. U.S.-based oil and natural gas companies would be forced to pay a double tax on part of their income from their foreign operations—creating a competitive disadvantage.

These changes would substantially raise the costs and impact operations of U.S.-based companies. As a direct result, foreign entities– such as national oil companies– would become competitively advantaged since they would continue to incur only one level of taxation in almost all cases. An informal look at some large U.S.-based companies shows that while almost 80 percent of their 2009 net profits are from foreign sources almost 50 percent of their workforce is in the U.S. Many of these U.S. jobs will be at risk if the companies were to lose market share to foreign competitors.

Eliminating the ability to expense intangible drilling costs Intangible drilling costs (IDCs) include the labor for setting up drill sites, designing platforms and drilling the wells—similar to research and development (R&D) costs. The current treatment of IDCs is directly reflected in oil and natural gas industry jobs, and current law 2 allows independent producers to immediately write off these costs. Integrated oil companies can recover 70 percent of their intangible drilling costs in the year incurred and the remainder over 5 years.

IDCs enable U.S. oil and natural gas companies to continue exploring for and producing domestic resources, which provide significant revenue to federal and state governments— nearly $13.3 billion for FY09. Proposals are being considered to disallow this treatment and require these costs to potentially be recovered over the life of the reservoir—as long as a 20-30 year period.

However, the current treatment for IDCs is consistent with the full deductibility of R&D expenses, currently available to all taxpayers. The uncertainty and risk in drilling wells are not dissimilar from the uncertainty and risk involved in R&D.

According to the Department of Energy, the U.S. is a very expensive region to drill for oil and gas. Repealing the deductibility of IDCs will necessarily force U.S. producers to slash exploration budgets, leading to less domestic production, a loss of U.S. jobs, and increased imports. None of these results help the U.S. achieve our national goals of jobs, economic recovery and energy security.

Congress should not overturn these long-standing policies that support U.S. jobs and U.S. energy security. Possible increases in alternative energy production will not make up for the U.S. jobs that will be lost if these provisions are repealed.

If they even allow Drilling. Couple all this with the Drilling Moratorium itself? Yeah, you get the picture.
Peter