Congress may soon pass a sweeping tax stimulus proposal, possibly in late spring. Corporate America generally likes both House and Senate versions, although oil companies are unhappy with a key Senate provision.
To help meet a self-imposed spending limit, the Senate narrowly voted to repeal an income tax exemption for US expatriates. The Senate action effectively eliminates $80,000 of tax-free earned income (plus certain housing costs) granted to many multinational oil company employees working overseas.
US jobs
Senate Democrats led by Sen. John Breaux (D-La.) failed to remove the proposal earlier this month.
"The type of people we are affecting are really Americans who are working overseas for relatively modest salaries in far-off places doing important work that ultimately creates jobs in this country," Breaux said.
"We have had many statements from organizations that have workers working overseas who say, look, if this exemption is gone, we will have to terminate those American workers and give the jobs to foreigners working in their own country. We will be having foreign citizens hired by American companies doing work that is now currently done by American citizens. That is not good tax policy," Breaux said.
A larger House tax cut package preserves the earned income tax break. Chances are good the earned income provision will survive in a final bill, but there are no guarantees.
Congress is responding to the White House's controversial $725 billion tax cut plan offered last January. The Senate bill repeals corporate dividend taxes for 2004, 2005, and 2006; the tax break technically "sunsets" (ends) in 2007. It also allows corporate dividends to be tax-free and gives multinational companies a 1 year window to repatriate capital.
The House version lowers the top tax rate on dividends to 15% over 11 years and gives corporations a large tax break for new investments.
But some smaller independents are worried that if the White House succeeds in removing dividend taxes, capital may get scarcer for them. That's because they fear Wall Street may increase pressure on companies to "dividend out" cash instead of reinvesting money back into the drillbit.
Without an incentive to build reserves, an already tight US natural gas supply situation may be further exacerbated, some analysts say.
Highway taxes
Industry is also watching the highway spending reauthorization bill. The Internal Revenue Service this spring delayed a proposal to tax offroad highway vehicles, including mobile carrier and trailer-mounted land drilling rigs.
IRS said it will wait until Congress "has had the opportunity to provide guidance," the Department of Treasury told the International Association of Drilling Contractors and other members of the Mobile Machinery Coalition.
New IRS rules will not be finished until after "the enactment of legislation reauthorizing the Highway Trust Fund," Treasury officials said. IADC says the diesel tax portion of the plan alone would cost $3,000-5,000/rig/ year.
