This article was updated on Sept. 15 to reflect legislative developments.
By OGJ editors
HOUSTON, Sept. 14 -- Proposals by the Obama administration to kill two tax provisions important to oil and gas companies would do economic harm worth more than the revenue they would raise for the government, according to a study commissioned by the American Energy Alliance.
Louisiana State University Prof. Joseph R. Mason, who conducted the study, concludes that ending “dual-capacity” tax provisions and denying oil and gas companies use of a tax deduction available to other industries since 2004 “could cripple the oil and gas sector.”
Under current dual-capacity tax law, companies with income outside the US can lower US income taxes by the amounts they pay in income taxes to other governments. The administration proposes to adjust dual-capacity rules so as to slash the value of the credit.
The move would impose double-taxation on much foreign income and hurt the abilities of international oil companies based in the US to compete abroad.
The other proposal would prevent US oil and gas companies from using a deduction enacted in Sect. 199 of the American Jobs Creation Act of 2004 to bring overall tax rates of US manufacturers in line with those of non-US competitors.
Together, Mason says, the moves would cut US economic output by $341 billion and wages by almost $68 billion over the next decade. They would eliminate 154,000 jobs in 2011 and a further 115,000 jobs over the rest of the decade.
Mason points out that the losses he projects exceed the $210 billion that some analysts have estimated would flow to the US Treasury as a result of the tax changes.
And Mason says those analyses don’t account for “the inexorable reality that US corporations will respond to higher taxes by restricting domestic production and moving operations elsewhere in the world.”
The Senate on Sept. 14 rejected an attempt by Sen. Bill Nelson (D-Fla.) to deny use by the five largest oil companies of the Sect. 199 deduction. Nelson made his proposal as an amendment to legislation to provide incentives to small businesses.