Nick Snow
Washington Editor
WASHINGTON, DC, Feb. 13 -- US House Democrats reintroduced a bill to fund renewable energy tax incentives by increasing major oil companies' taxes on Feb. 12. Plans originally called for debate by the end of the week, but scheduling conflicts made it necessary to postpone that until after next week's Presidents' Day recess.
Sponsors portrayed the proposed taxes as an end to subsidies for an industry which made record profits in 2007 as consumers paid record prices for petroleum products. "Instead, we need an energy plan that reduces our dependency on foreign oil and invests in clean, renewable technology that will create jobs here in America," Ways and Means Chairman Charles B. Rangel said.
He noted that the bill, HR 5351, contains tax credits to promote renewable energy production from wind, solar, geothermal, cellulosic ethanol, and biofuels, many of which are due to expire at yearend. "This bill extends critical tax credits for the production and use of renewable energy while also encouraging families to invest in technology that conserves energy," Rangel said.
The bill's two revenue provisions are directed primarily at major oil companies. The first would deny tax credits under Section 199 of the federal tax code, allowing US businesses to deduct production costs so they are better able to compete with foreign firms receiving government subsidies, to "large integrated oil companies." It also would freeze domestic production income deductions for independent producers and smaller refiners at 6%, the current level. Sponsors said this would raise $13.57 billion over 10 years.
Foreign tax credits
HR 5351's second revenue provision would raise another $4.08 billion over 10 years by closing what sponsors said is a loophole that allows producers to manipulate their foreign extraction income to achieve better results under US foreign tax credit rules. It would require US producers operating overseas to use the ascertainable market values at the nearest point to a well to calculate foreign extraction and oil-related income. It also would require that where a foreign government collects taxes that are limited in their application to oil and gas taxpayers, the taxpayers treat such taxes as oil and gas taxes subject to the foreign oil and gas extraction income credit limitation in the US tax code.
The bill does not include a provision of earlier House bills which would have returned the geological and geophysical expense amortization period to seven years by repealing the 2005 Energy Policy Act provision which reduced it to 5 years. The measure had 32 cosponsors when Rangel introduced it.
Oil and gas industry associations immediately responded. "This bill, like the prior three or four which have been similar, still makes the mistake of using oil and gas tax provisions to pay for new tax expenditures for other forms of energy. The question is not whether to move forward on these new forms of energy, but whether it makes sense to take capital from investment in existing American energy businesses," Lee. O. Fuller, vice-president of government relations at the Independent Petroleum Association of America, said on Feb. 13.
Mark Kibbe, a senior tax analyst at the American Petroleum Institute, found it interesting that House Democrats this time chose a provision repealing Section 199 of the tax code for oil and gas firms from a December bill and another changing the foreign tax credit for US oil and gas firms from an earlier House bill which passed in August. "It's still a $17.65 billion tax on the oil and gas industry, which we think is a particularly poor choice for Congress to make, particularly when it just passed an economic stimulus bill," he told OGJ on Feb. 13.
Kibbe also questioned the idea that the latest bill affects only major oil companies and large refiners. "Clearly, that's not true because they've elected to include the freeze on 199 for smaller companies, including small refiners. They've been saying that more small refineries are needed, which aren't an attractive investment already but would be even less attractive if this investment incentive was repealed," he said.
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