Nick Snow
Washington Editor
Officials from three other national associations joined the American Petroleum Institute on May 9 in rejecting calls by US President Barack Obama and other Democrats to penalize the oil and gas industry by repealing several of its key federal tax deductions.
"In a populist sense, it sounds as if they're punishing the energy companies for allegedly charging too much," said Martin Regalia, chief economist and senior vice-president at the US Chamber of Commerce. "In reality, they are punishing the American economy because it relies heavily on energy with proposals which have not worked in the past and would not work now."
Karen Kerrigan, president of the Small Business and Entrepreneurship Council, said, "Many small businesses continue to struggle. Revenues are being squeezed and costs are increasing. Access to capital is very limited, and rising energy costs are starting to take their toll."
Small business owners are looking for policies that promote certainty and growth, she continued. "Many directly depend on the energy industry itself," she said. Even if Congress successfully limited tax increases to the five biggest oil companies as some have proposed, "thousands of small businesses sell services and supplies to those companies," Kerrigan said.
Ryan Ellis, tax policy director at Americans for Tax Reform, said, "If you raise taxes on energy companies, you're simply hurting consumers. Higher taxes mean fewer dollars are available for investments and job."
Noting the Obama administration's recommendations to federally support renewable energy technology research and development, Ellis added, "The question is whether we want to take money from a proven, economically efficient industry and give them to something that's uncertain and untested."
600,000 b/d penalty
Not letting oil and gas producers deduct 60-80% of drilling costs in a project's first year and removing the Section 199 federal tax deduction from the industry would cost the country 600,000 b/d of production, API Senior Tax Advisor Brian Johnson said.
The industry welcomes serious federal tax reform discussions if they involve equitable treatment, he said. "The one aspect we find challenging is cost recovery, particularly the amount of time required," Johnson said. Producers use the 60-80% of first-year drilling costs they recover to finance projects and put people to work, he observed.
"You want to have full expensing of costs, whether they're intangible drilling expenses for oil and gas or asset depreciation for other businesses," said Ellis. "You want all companies to be able to write costs off in the first year."
Regalia concluded, "I think the fact we have a huge budget deficit makes comprehensive tax reforms more likely. Whether that's accomplished in this or the next Congress is open to question."
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