The White House is hoping the third time is the charm as it again asks Congress to raise tens of billions of dollars for federal coffers by slashing a raft of tax incentives long enjoyed by oil and gas companies.
But just as in the past two years, President Barack Obama’s appeal is almost certainly dead on arrival on Capitol Hill.
Obama is taking aim at the oil and gas tax incentives in his budget proposal for the 2012 fiscal year that begins Oct. 1. According to the administration, doing away with eight “oil and gas preferences” would generate $3.5 billion in fiscal 2012 and $43.6 billion over the next decade.
Other proposed changes to the way companies can get credit for foreign taxes, the planned reinstatement of Superfund taxes to pay for cleaning up contaminated industrial sites and possible new fees for oil and gas drilling could cost another $2 billion in fiscal 2012.
Oil and gas industry leaders today said the administration’s plan is shortsighted, because any immediate gains in tax revenue would be offset by longer-term losses, as the changes make more wells uneconomic to produce and discourage exploration.
“The increases, over the long term, would actually lower revenue to the government by many billions of dollars as a result of foregone revenues from projects the tax hikes would prevent going forward,” said American Petroleum Institute President Jack Gerard.
Barry Russell, president and CEO of the Independent Petroleum Association of America, said that “lost capital investment due to increased taxes will reduce these tax payments over time, not increase them.”
Although Obama has cast his proposal as a way to cut tax breaks for “Big Oil,” Russell said “small, independent energy producers” would bear a big burden. He said the administration’s budget plan “goes after the thousands of small businesses (that are) America’s independent oil and natural gas producers.”
Obama telegraphed his tax plan in the State of the Union speech, when he told lawmakers and a national audience that tax incentives for oil, natural gas and coal should be replaced by spending to promote the development and deployment of “clean energy” technology.
“Instead of subsidizing yesterday’s energy, let’s invest in tomorrow’s,” Obama said. After all, he added, oil companies are “doing just fine on their own.”
The White House is seeking to roll back a deduction that mineral right owners can take for the value of oil and gas removed from their property. Industry leaders say the percentage depletion deduction is essential to sustaining small, barely economic wells. But the administration says eliminating the tax policy would raise $607 million in fiscal 2012.
Another target for elimination is a 97-year-old deduction for intangible drilling costs such as expenses for fuel, hauling supplies and preparing sites. Companies now have the option of deducting the expenses the year they occur or over a five-year period, but if the provision were repealed, the costs would have to be capitalized and depreciated over a longer time frame.
By getting rid of the IDC deduction, Congress would send an estimated $1.9 billion to the U.S. treasury in fiscal 2012 — and an estimated $12.5 billion over the next decade.
Industry advocates argue that eliminating the IDC deduction would dry up capital needed to finance new wells.
The administration also wants Congress to change the way companies can get credit for foreign levies — such as petroleum income taxes — that they pay in exchange for some “economic benefit,” including access to a country’s reserves. The White House plan would block companies from taking a credit on their U.S. returns for what they pay in foreign levies above the general tax rate in those countries — a change that would raise an estimated $532 million in fiscal 2012.
Although the change would apply to all dual-capacity taxpayers, it would mostly affect oil and gas companies that pay a higher tax than general businesses in Norway, Nigeria, the United Kingdom and other countries.
Obama is also asking Congress to boost by one cent the per barrel fee that gets paid into an Oil Spill Liability Trust Fund established after the Exxon Valdez disaster. According to the administration, the change would raise an estimated $451 million over from fiscal 2012 through 2021.
Separately, the White House is asking Congress to nearly halve the federal Low Income Home Energy Program and cut it to roughly $2.6 billon in fiscal 2012. The administration’s request is already turning off lawmakers in the Northeast, where households rely on the prices to offset high home heating oil and gas bills. The American Gas Association also opposes cuts to LIHEAP.
Rep. Ed Markey, D-Mass., said he would be fighting cuts in LIHEAP funding that he said could leave more than 3 million families without help paying heating bills.
“The president recognizes that we don’t need to provide 100 year-old tax breaks to oil companies so they can sell $100 per barrel oil and make more than $100 billion per year,” Markey said. “We should be helping our nation’s poorest citizens by fully funding low-income heating assistance programs — not shareholder assistance programs for oil company executives.”
Charles Drevna, president of the National Petrochemical and Refiners Association, said the administration’s proposed taxes would “drive up the cost of gasoline, diesel fuel, home heating oil, jet fuel and petrochemicals – hurting every American consumer and every American business.”
The proposal “would weaken America’s oil production, refining and petrochemical industries, would increase our reliance on foreign nations, would send more American jobs and more American dollars to our competitors abroad and would increase unemployment here at home,” Drevna added.