Industry groups react to Camp’s federal tax reform proposal

US House Ways and Means Committee Chairman David L. Camp (R-Mich.) released a federal tax reform proposal that quickly drew fire from oil and gas associations because it called for repealing several provisions much of the industry considers essential.

Camp said his plan would simplify the federal tax code by increasing the standard individual and business deductions while eliminating more than 220 exemptions. These would include the percentage depletion allowance and the passive activity allowance for working interests in oil and gas property.

The process involved more than 30 separate congressional hearings dedicated to tax reform; 11 separate bipartisan tax reform working groups created in conjunction with US Rep. Sander Levin (D-Mich.), the committee’s ranking minority member; 3 discussion drafts looking at discrete areas of the tax code, and more than 14,000 public comments, Camp said on Feb. 26.

“This is a comprehensive plan that reflects input and ideas championed by Congress, the administration, and—most importantly—the American people,” he maintained. “In other words, it recognizes that everyone is a part of this effort and can benefit when we have a code that is simpler and fairer.

Levin said the proposal begins a discussion that Democrats have wanted to have on a bipartisan basis. “We believe it is vital that tax reform encourage economic growth, support working families, broaden the middle class, and address income inequality,” he maintained.

“It must produce a fairer and more adequate tax code for all Americans, ensuring that wealthy individuals and corporations pay their fair share while preserving our long-term economic security in a fiscally responsible way that promotes jobs in the United States,” Levin continued.

Association leaders respond

But leaders of three national oil and gas associations quickly criticized the discussion draft.

“Chairman Camp’s ideas show he has put a lot of work into tax reform, but there is a great deal of work left to do,” American Petroleum Institute Pres. Jack N. Gerard said. “Tax reform is not easy to achieve. As this proposal illustrates, it is even harder to get right.”

An energy and manufacturing renaissance has brought the US economy through tough times and created hundreds of thousands of domestic jobs, Gerard observed. “There are serious flaws in this discussion draft regarding cost recovery and [last in-first out] accounting that could hurt jobs, American energy production, and our energy security,” he warned.

Independent Petroleum Association of America Pres. Barry Russell said the group likes the discussion draft’s plan to retain the federal tax code’s exemption for intangible drilling costs, but is troubled by its change in the percentage depletion allowance and passive loss exception.

IPAA nevertheless appreciates the effort Camp put into developing his proposal, Russell said. “This document marks an early step in a long process to develop appropriate revisions to the federal tax code to both simplify taxes and continue to encourage US economic development,” he indicated.

American Fuel & Petrochemical Manufacturers Pres. Charles T. Drevna said the extension of depreciation schedules and the repeal of the manufacturing tax deduction in Camp’s draft would hurt domestic investments.

“Furthermore, we seriously question retroactively repealing commonly used accounting practices to finance tax reform,” Drevna said, adding, “Accelerated depreciation, the manufacturing tax deduction, and LIFO are critical deductions that all domestic manufacturers use to help recover costs and replace inventories.”

Others also are critical

Other business groups welcomed Camp’s proposal while criticizing parts of it. R. Bruce Josten, the US Chamber of Commerce’s executive vice-president for government affairs, said the nation’s largest business organization was concerned about negative impacts parts of the discussion draft would have on “our still-struggling economy.”

Josten said the Chamber has long advocated for tax reform as a catalyst for creating jobs, economic growth, and stronger international competitiveness. “Even Chairman Camp would be the first to admit that his plan is not the end of the road but just the next step in a long journey,” the US Chamber official said.

Dorothy Coleman, vice-president of tax and economic policy at the National Association of Manufacturers, said that group also considers Camp’s discussion draft a major step toward comprehensive tax reform, and looks forward to working further with the committee to ensure the best outcome.

“Comprehensive reform carries with it serious effects on our economy, along with the potential to unleash significant growth if done well,” she observed. Federal tax revenues account for nearly one fifth of the US Gross Domestic Product, and any change needs to be looked at very carefully, Coleman said.

“There are many voices in the tax reform conversation,” noted API’s Gerard. “We will continue to educate lawmakers on the important role tax policy plays in the investment decisions of capital intensive industries like ours.”

Contact Nick Snow at nicks@pennwell.com.

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