Deep federal spending cuts and tax increases due to automatically kick in early next year actually may force Congress and the White House to finally begin addressing the federal budget deficit in 2012's final weeks. But exactly how—let alone whether it will involve possibly repealing federal tax provisions that the US oil and gas industry considers essential—remains very uncertain, Washington observers say.
"I think that the end of the year is way too foggy to determine what will be done and therefore, what will be needed," suggested Stephen Comstock, the American Petroleum Institute's tax policy manager.
"To the extent there are efforts to target our industry as a stopgap or to offset select items, we will maintain the same opposition position we have been in for the past few years," he continued. "However, if there is a serious effort to include all issues and industries in comprehensive tax reform, then we will be part of that discussion."
Lee O. Fuller, Independent Petroleum Association of America vice-president for government affairs, said, "I feel there's a risk, principally because it's going to be so chaotic as they figure out what they can and can't do. There will be so many moving parts—not just personal taxes, but payroll taxes, the alternative minimum tax, and others."
He added, "With all that in the mill, I wouldn't be surprised to see the administration put revenue raisers on the table, including the oil and gas provisions in the tax code."
Little time left
Bruce Thompson, president of the American Exploration & Production Council, said Congress has just a few weeks in September and possibly a brief lame-duck session following November's elections to find a way to delay the automatic spending cuts and tax increases again.
"We're beginning to hear discussions of a more serious run at tax reform next year," he said. "In the end, however, Congress needs to do something. It probably makes more sense for it to take another year and do something serious—more than simply removing deductions and lowering tax rates. There are a lot of arms and legs to this which need to be considered."
Talk of repealing tax provisions favorable to other industries as well as oil and gas is very likely once any serious discussions begin, Thompson added.
The oil and gas industry will need to be heavily involved, Comstock maintained. "We would want to work with Congress on ways to address tax reform but not undermine good energy policy, economic investment or job growth—which we see as being key points to a successful economic/tax reform effort," he said.