API Oil tax proposals reflect Obama's energy inconsistency

More than $85 billion in new oil and gas taxes in US President Barack Obama’s proposal to reform federal corporate tax rates reflect his administration’s inconsistent attitude toward the industry, American Petroleum Institute Pres. Jack N. Gerard said. He strongly objected to characterizing recovery of normal business expenses as tax preferences and loopholes.

“Certainly, it’s better to hear the administration talk about more US oil and gas production than when the president called it yesterday’s energy in last month’s State of the Union address,” he told reporters during a Feb. 23 teleconference. “But what is being proposed will actually chase away energy investment in our country. It will stifle expenditures, discourage development, and drive prices up.”

Administration officials have said that eliminating what it considers special tax breaks is essential before the US corporate tax rate can be reduced from 35% to a more globally competitive 28%. Industry leaders expect the proposal to include the same new oil and gas taxes that are in the White House’s fiscal 2013 federal budget request.

“Our current corporate tax system is outdated, unfair, and inefficient,” Obama said on Feb. 22. “It provides tax breaks for moving jobs and profits overseas and hits companies that choose to stay in America with one of the highest tax rates in the world. It is unnecessarily complicated and forces America’s small businesses to spend countless hours and dollars filing their taxes. It’s not right, and it needs to change.”

‘Special benefits’

“Our corporate tax rate is now on pace to become the highest among all developed economies,” US Sec. of the Treasury Timothy F. Geithner separately said on the same day. “The rate is high in order to pay for a tax code full of special benefits for certain industries and certain activities. You can call these tax preferences, tax expenditures, loopholes, incentives, or tax benefits. But whatever you call them, they are subsidies. They are spending through the tax code. And they are expensive, costing billions of dollars a year.”

The provisions are fundamentally unfair because they flow to certain industries and not others, according to Geithner. “Right now, companies in some industries pay two or three times the effective tax rates as companies in other industries,” he said. “For example, the effective tax rate on an investment in buildings or other structures by a manufacturing company might be twice as high as the rate that applies to an oil or gas company.”

“I think what he said was an effort to confuse the issue by not recognizing standard business deductions and cost recovery mechanisms,” Gerard responded. “When the public understands that these exist, as they do in small businesses to recover costs of buying a computer or driving a delivery truck, they recognize that this is different from a subsidy. We think it’s important to remind the public that we don’t receive subsidies. These are cost recovery mechanisms, just as everyone else receives.”

API said the oil and gas federal tax code provisions that the Obama administration wants to repeal, and the revenue it estimates would be raised over 10 years, include the Section 199 manufacturers’ tax credit which would remain available to other industries ($11.6 billion); expensing of intangible drilling costs ($13.9 billion); modifications of rules for dual capacity taxpayers ($10.7 billion); and last in-first out (LIFO) accounting ($25.8 billion).

Other repeals

Also proposed for repeal are the current geologic and geophysical cost 5-year amortization period, which would be replaced with one for seven years ($1.4 billion); percentage depletion ($11.5 billion); and the tertiary injectants deduction ($100 million). The administration also wants to reinstate the chemical waste superfund tax for crude oil and petroleum products, which it estimates would raise $10.5 billion over 10 years, API said.

Geithner said the administration also wants to enact incentives for companies to manufacture more goods domestically, and discourage US companies from moving investments and profits to countries with lower tax rates by imposing a new minimum tax on foreign earnings, stronger safeguards against transfer pricing abuses, and replacing tax deductions US companies now get for relocating overseas with tax credits for expenses when US companies bring operations back home.

“The tax provisions the president has cited are being spun as subsidies, which simply isn’t true,” API Chief Economist John C. Felmy said in a Feb. 22 teleconference. “It’s being talked about as a fairness issue. There’s nothing fair about taking money from oil company owners who are retirees, from an industry because you don’t like it, or from consumers by raising prices.”

API Tax Policy Manager Stephen Comstock, who also participated, told reporters that US House Ways and Means Committee Chairman Dave Camp (R-Mich.) has said he is willing to look at federal tax reform proposals. “But we’re also in an election year,” Comstock continued. “We take all proposals that come from the administration seriously. Whether this one has any traction on Capitol Hill is for other prognosticators to consider, but I’m certain that people up there will take any proposal to improve the economy seriously.”

Gerard said on Feb. 23: “We strongly support corporate tax reform. We would like to work with the administration and congressional leaders to bring the corporate rate down and make it more competitive with other countries. But we oppose proposals which pick winners and losers…. We believe a comprehensive reform should include everybody and not penalize certain industries because you don’t like what they produce.”

Contact Nick Snow at nicks@pennwell.com.

Related Articles

BG’s 2015 budget ‘significantly lower than 2014’

02/03/2015 BG Group plans capital expenditures on a cash basis of $6-7 billion in 2015, a range it says is “significantly lower than 2014” due to “a lower oil...

BP trims capital budget by $4-6 billion

02/03/2015 BP PLC plans an organic capital expenditure of $20 billion in 2015, down from the previous guidance $24-26 billion. Total organic capital expenditu...

EPA suggests DOS reconsider Keystone XL climate impact conclusions

02/03/2015 The US Department of State might want to reconsider its conclusions regarding potential climate impacts from the proposed Keystone XL crude oil pip...

IHS sees second-half end of US output surge

02/03/2015

Expectations are moderating about growth of oil production in the US this year.

Anadarko reports 2014 loss, remains upbeat about Wattenberg

02/03/2015 Anadarko Petroleum Corp. announced a 2014 net loss of $1.75 billion, or $3.47/share diluted, including a net loss of $4.05 billion associated with ...

CNOOC cuts capital budget, starts production from Jinzhou 9-3

02/03/2015 CNOOC Ltd. is slashing its capital budget for 2015 by 26-35% to $11.25-12.86 billion compared with last year’s budget. Capital expenditures for exp...

Seven Group buys into Beach Energy

02/03/2015 Media group Seven Group Holdings, Perth, has bought 13.8% of Adelaide-based Beach Energy Ltd. through share purchases fuelling speculation of a pos...

Karve joins Cobalt for Cameia development

02/03/2015 Shashank V. Karve has joined Cobalt International Energy Inc. as executive vice-president in charge of development of deepwater Cameia oil field on...

MARKET WATCH: NYMEX crude oil stays positive on lower rig count

02/03/2015 Oil prices on the New York and London markets closed higher Feb. 2 on positive momentum generated by a falling US rig count, suggesting cuts in pro...
White Papers

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...
Available Webcasts


Prevention, Detection and Mitigation of pipeline leaks in the modern world

When Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST



On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected