Treasury’s Lew lists oil, gas producers as prime tax-reform target

Jan. 21, 2015
US Sec. of the Treasury Jack Lew signaled the Obama administration’s fresh intention to seek repeal of federal tax provisions US oil and gas producers consider essential to their businesses as part of its comprehensive business tax-reform plan.

US Sec. of the Treasury Jack Lew signaled the Obama administration’s fresh intention to seek repeal of federal tax provisions US oil and gas producers consider essential to their businesses as part of its comprehensive business tax-reform plan.

President Barack Obama wants to reform business taxes to help fuel economic growth; encourage businesses to create good, high-paying US jobs; and expand opportunities so the nation’s economic gains build a strong middle class, Lew said in a Jan. 21 address at the Brookings Institution.

“Over time, our tax code has become increasingly loaded down with special interest loopholes, deductions, and assorted tax subsidies,” Lew said. “Some were good ideas whose time has now passed; others were special-interest giveaways from the beginning. The end result is a system rife with industry-specific tax breaks and widely disparate effective tax rates from one sector to the next, often providing incentives that do not reflect what our economy needs today.”

He said, “For instance, oil and gas producers are rewarded with a number of special-interest tax breaks that unfairly reduce the taxes of oil companies far below what other industries, like retail and manufacturing, pay on their earnings.”

An American Petroleum Institute official immediately challenged the secretary’s characterization.

“[He] needs to get his facts straight,” API Tax and Accounting Policy Director Stephen Comstock said. “America’s oil and gas companies pay considerably more in taxes than the average manufacturing company. And we use the same kind of cost-recovery deductions that are available to every other industry to reinvest money back into the economy.”

Helped create jobs

Comstock said the ability to recover costs through ordinary tax deductions has let the US oil and gas industry create millions of middle-class jobs and make America the world’s leading energy producer.

“History has shown that the people most hurt by higher taxes that increase the cost of energy production are lower-income and middle-class Americans,” Comstock said.

For years in its annual federal budget proposal, the White House has proposed repealing provisions such as intangible drilling cost deductions, the percentage depletion allowance, and the passive loss exclusion which producers consider important business costs but critics in the administration and Congress regard as tax breaks.

“Keep in mind loopholes, credits, and subsidies are forms of tax expenditures,” Lew said. “They are spending that is done through the tax code, and because they represent lost tax revenue, we all help foot the bill for these expenditures.”

He conceded that provisions such as the Earned Income Tax Credit, expensing for small businesses, and the Research and Experimentation Tax Credit are worthwhile and should be preserved.

“But these tax incentives cost money and need to be paid for to maintain adequate revenue levels,” Lew said. “And we cannot apply a double standard, as some have proposed, where we permanently extend business provisions without paying for them.”

Contact Nick Snow at [email protected].