WASHINGTON — Most registered voters believe raising taxes on oil companies would hike costs for consumers and oppose boosting energy taxes now, according to a poll unveiled Tuesday.
Oil industry leaders and lobbyists say the new polling data, from a Harris Interactive survey commissioned by the American Petroleum Institute, helps them make the case that lawmakers should preserve a suite of cherished industry tax breaks that date back decades.
According to the survey results, 7 out of 10 registered voters believe raising taxes on oil and natural gas companies could drive up energy costs for consumers. And 81 percent think “now is not the time for politicians in Washington to raise energy taxes.”
But the tide may be shifting on Capitol Hill, where lawmakers from both parties are writing tax reform bills that would lower the corporate tax rate in exchange for repealing “loopholes” and deductions. And, on Wednesday, 29 members of a House-Senate conference committee will kick off meetings aimed at developing a long-term budget plan by Dec. 13, which could take the form a “grand bargain” with broad tax changes or a smaller deal focused on replacing $91 billion in automatic across-the-board sequester cuts.
Both prospects are spurring intense lobbying by the oil industry, led by the API, the Independent Petroleum Association of America and other trade groups worried their tax breaks hang in the balance.
“We, in the past, have always been in the crosshairs, whether it’s a grand bargain, a small bargain (or) a mini bargain,” said Stephen Comstock, API’s director of tax policy. “Since you have both of these engaged – a grand budget (committee) as well as tax reform looming out there – we (wanted to) provide information back into those processes. We just see this as an opportunity to engage with them and let them know how their constituents feel.”
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On Oct. 22, API, IPAA and the American Exploration and Production Council held a briefing for House and Senate staffers to warn against spiking oil and gas provisions in the tax code.
Comstock said he had not seen specific tax legislation, including a measure being written by House Ways and Means Chairman Dave Camp, R-Mich., or a separate bill being drafted by Senate Finance Committee head Max Baucus, D-Mont.
“We do know these items are in the mix. People have been talking about them,” he said. “We do hear snippets that this is being brought up or this is being discussed.”
Comstock said the latest push is part of an overall effort to make sure members of those two tax-writing committees are “armed” with the best data available about the financial repercussions of possible changes.
Possible changes at play include doing away with the “last in first out” accounting technique that allows inventories to be valued at the most recent price paid when calculating net profit and taxable revenue. Companies that use the LIFO accounting trick — instead of a more international accepted “first in, first out” method — can slash their taxable revenue if the prices for their reserves have gone up.
The provision is popular with oil companies, who have benefited from using LIFO to value reserves of crude that have generally climbed in price over the past decade. According to the Joint Committee on Taxation and the Congressional Research Service, changing the LIFO provision could raise $78.3 billion from fiscal 2013 through fiscal 2022, with about $26 billion coming from the oil and gas industry.
Other options that could be on the table include:
- barring independent oil and gas companies from deducting intangible drilling costs, such as repairs, site preparation and hauling supplies. If those intangible drilling costs had to be capitalized and recovered under generally applicable rules, the government would take in roughly $14 billion more over the next decade, according to the Joint Committee on Taxation and the Treasury Department.
- blocking oil and natural gas companies from claiming deductions for domestic manufacturing income. Under a 2004 law, the so-called Sec. 199 domestic manufacturing tax deduction applies to a broad swath of products, from agricultural goods to architecture. A final proposal could completely do away with it for all qualifying domestic manufacturers or rule it out for the oil and gas sector. Ending it for just oil, gas and coal companies would bring in an additional $19.9 billion over the next 10 years, according to the Joint Committee on Taxation and the Treasury Department.
- repealing the percentage depletion that can be claimed for oil and natural gas wells, at a value of $11.7 billion over 10 years. The natural gas industry argues that this tax incentive is critical to sustaining small, barely economic wells.
Although lobbyists have been making entreaties to congressional tax-writers for years, the oil and gas industry has few clear allies on the budget panel. In a research note to its clients on Tuesday, ClearView Energy Partners noted that the 29 lawmakers represent just 6.3 percent of domestic crude production and less than a third of U.S. dry gas production. The Washington, D.C.-based analysis firm has previously documented that lawmaker’s energy votes on Capitol Hill tend to be closely tied to natural resources back home.
Even so, ClearView noted there are “high hurdles” to changing oil and gas tax policy through the budget conference committee, since congressional rules would effectively require at least one House Republican to sign off on any final plan. Given the conservative House Republican members of the group, that seems unlikely, ClearView says, especially as long as there is the prospect of a broader, deeper, economy-wide tax overhaul on the horizon.