Oil and gas industry association officials blasted a proposal sent by several congressional Democrats to the deficit reduction super committee on Nov. 2 to raise revenue by eliminating key provisions benefiting the industry. Congress and the super committee should take the necessary time to comprehensively address tax reform questions and resist apparently easy suggestions which actually would do more economic damage, they said on Nov. 7.
"Some of the proposals are just punitive to oil and gas as a sector. Others are even more specifically selective and more punitive by selecting just a handful of companies," American Petroleum Institute Pres. Jack N. Gerard said in a teleconference with reporters. "All you have to do is look at corporate earnings, and you'll find companies that make more but pay a lower effective tax rate. No one is calling for higher tax rates for those companies, nor should they. We should be focused on creating jobs, not punishing a particular industry."
Others questioned the wisdom of Congress trying to make major tax policy reforms in such a short period. "Proposals to drop corporate rates into the 25% level will require repealing significant depletion exemptions that are way beyond our industry, such as eliminating accelerated depletion and the manufacturers' tax deduction for every industry, not just ours," noted Lee O. Fuller, vice-president of government relations at the Independent Petroleum Association of America. "When you start sweeping through it in that context, we're a minor player."
In a separate interview, V. Bruce Thompson, president of the American Exploration & Production Council (AXPC), said, "It's a blanket approach—just get rid of everything oil and gas, and let the chips fall where they may. Our concern is with the thinking on intangible drilling cost deductions, which is clearly a tax code provision which lets us recover, in the year of expenditure, any items that have no salvageable tax value, as with any company's research and development expenses."
Negative impacts
"These tax increases would hurt American consumers and employers by raising the costs of driving, raising the costs of manufacturing and transporting products, and raising the costs of operating businesses," National Petrochemical & Refiners Association Pres. Charles T. Drevna said in a statement. "They would make it harder for American oil and gas producers, and fuel and petrochemical manufacturers to compete with foreign rivals on a level playing field. This would wipe out jobs, weaken our economy, and increase America's reliance on foreign oil, fuels, and petrochemicals."
Their responses came after several congressional Democrats urged the super committee to repeal federal tax provisions which directly benefit the oil and gas industry or exclude the industry specifically from general corporate tax exemptions. "This is not class warfare. This is common sense," declared Robert Menendez (NJ), a Senate Energy and Natural Resources Committee member, in a Nov. 2 press release. "We want the oil companies and their shareholders to do well, but we should not be spending 21 billion taxpayer dollars to unfairly reward their tremendous success."
"I applaud the success of these companies and believe that in the United States individuals should, through merit and hard work, be able to build wealth," Rep. James P. Moran (Va.), ranking minority member on the House Interior Appropriations Subcommittee, said in a commentary in the Nov. 3-9 Falls Church (Va.) News-Press. "But given their profitability, it's clear that these companies do not need their current tax breaks and the public subsidies they receive. Big oil tax expenditures are, without doubt, wasteful spending of taxpayer dollars. Removing these tax breaks will not hurt the oil and gas industry, nor will it affect the price of oil."
Gerard disputed such characterizations. Oil and gas pays more in total corporate taxes than any other US industry, he maintained. Its effective 2010 tax rate was an average 41.1%, compared with 26.5% for other businesses in Standard & Poor's Industrial Index, and the tax provisions critics target are no different than normal business deductions and cost recovery mechanisms widely used throughout the US economy, he said.
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