The corporate tax plan President Obama outlined on Wednesday would roll back oil-and-gas industry tax breaks while promoting more development of renewable energy such as wind and solar.
Obama’s proposal seeks to lower the corporate tax rate to 28 percent while closing loopholes and deductions that he claims make the current rate of 35 percent much lower in practice. His plan would roll back oil-and-gas “tax preferences” worth $40 billion over 10 years, along with other business tax breaks whose elimination the administration said would help make the plan revenue-netural.
“The tax code currently subsidizes oil and gas production through tax expenditures that provide preferences for these industries over others,” said a copy of the plan. “The Framework would repeal tax preferences available for fossil fuels.”
The rollbacks — considered dead on arrival in Congress — largely mirror those Obama proposed in his fiscal 2013 budget and State of the Union address. Among those breaks are the “tertiary injection” deduction, a manufacturing deduction that multiple industries benefit from, and the “intangible drilling costs” deduction (for well-development expenses that don’t go toward elements of the final well).
The American Petroleum Institute, the oil-and-gas industry’s main lobbying group, has slammed the proposed rollbacks over concerns that they would serve as an affront to the “all-of-the-above” energy policy Obama espoused in his State of the Union address. The group also has said they would hurt an industry that has boosted the economic recovery, hurt oil-and-gas production and raise energy costs.
Stephen Comstock, manager for tax policy at API, said the proposed corporate rate decrease is “enticing” but raised concern about how rolling back tax provisions to make the plan revenue-neutral would affect the oil-and-gas industry.
“Right now we as an industry anticipate we will pay a heavy share of that,” he said.
API also contended in a new policy paper that the oil-and-gas tax provisions Obama is targeting “are in no way ‘taxpayer subsidies’ and are not unique to our industry.”
“They constitute standard business deductions (some available to all other industries) and mechanisms of cost recovery – a fundamental and necessary component to a national income tax system,” the paper said.
API today suggested the president’s budget would actually rake in $85 billion from the oil-and-gas industry in 10 years, identifying other proposals that would extract further revenues. One would raise around $10 billion, according to API, by reinstating petroleum-industry taxes for the Superfund program, which finances the cleanup of hazardous-waste sites.
At the same time, Obama’s plan would boost renewable energy sources.
The plan would permanently extend a research-and-experimentation tax credit that expired Jan. 1, as well as seek to streamline the formula companies use for calculating it.
It also would permanently extend clean-energy production tax credits “in order to provide a strong, consistent incentive to encourage investments in renewable energy technologies like wind and solar.”
Obama has noted those tax credits are temporary, a characteristic that can hamper their effectiveness. For example in the past the production tax credit for wind has temporarily expired, causing new wind-farm installations to drop 75 percent or more, according to the American Wind Energy Association, the industry’s lobbying group.
“This approach has created an uncertain investment climate, undermined the effectiveness of our tax expenditures, and hindered the development of a clean energy sector in the United States,” Obama’s plan said.
Extension of clean-energy tax credits briefly came up for discussion in negotiations over extending the payroll tax cut through the end of the year. That language didn’t make it into final compromise, however.
Obama has made it clear extending the tax credits — and rolling back tax breaks for oil-and-gas companies — will remain an economic- and energy-policy priority for him.
“It’s time to end the taxpayer giveaways to an industry that rarely has been more profitable, and double-down on a clean energy industry that never has been more promising,” Obama said in his State of the Union. “Pass clean energy tax credits. Create these jobs.”