Federal tax reform briefly took center stage when US President Donald J. Trump said it would be emphasized after Speaker of the US House of Representatives Paul D. Ryan (R-Wis.) withdrew congressional Republicans' first health care reform bill of 2017 on Mar. 24. It was familiar territory for the US oil and gas industry, which routinely braces to preserve tax code provisions that it considers necessary. Critics regard them as unnecessary breaks.
Repealing the Affordable Care Act did not go away completely, however, and other issues emerged that seemingly shoved tax reform lower on the legislative agenda.
Oil and gas trade associations remained on alert since the White House routinely proposes an annual federal budget each year at this time for Congress to consider. In recent years, that has meant defending those provisions that industry associations believe should be retained.
Those groups also continue to believe that more general changes are needed. "We support tax reform. We encourage the Hill and the administration to take it on. We need to be more competitive globally because we now have one of the highest tax rates in the world," American Petroleum Institute Pres. Jack N. Gerard said during an Apr. 5 teleconference with reporters.
Trying to change the federal tax code will be more complicated than usual this year since the administration and White House showed interest in some new proposals to raise revenue.
"Many of the proposals that are coming out of the House lack details. We still believe there are a lot of uncertainties surrounding the border adjustment tax that need to be pinned down before we can understand it," Gerard noted.
Broadly, however, API believes any well-structured tax system should raise revenue in ways that do the least economic harm while encouraging investment and job creation and allowing taxpayers to compete internationally for opportunities, according to its web site.
"Any tax reform should be based on sound, transparent policies, and rates should be lowered to support a tax structure that promotes investment and is competitive with other major trading partners," it adds.
Possible output impacts
While recognizing that tax reform will be a substantial undertaking that will have significant effects on how US businesses look at their investments' economics, API says that it's important for policymakers to remember that new oil and gas taxes could directly affect production.
Oil and gas investments are similar to other industries' in that they emphasize research and development heavily "where the technologies of tomorrow must be funded by the successes of today," it said.
Any new tax regime must incorporate capital cost recovery provisions that take both risk and economic development goals into account, API says.