Montana Democrat Sen. Max Baucus’ tax reform proposal takes aim at tax benefits enjoyed by the oil and gas industry, but makes no policy recommendations on renewable energy tax subsidies.
Baucus, who chairs the Senate Finance Committee, and his House Republican counterpart, Ways and Means Chairman Dave Camp, have been working towards reforming the tax code.
“[W]hile the staff discussion draft slows down the cost recovery of certain energy assets, the Chairman’s staff is considering improving and making permanent certain energy tax credits set to expire in 2013,” reads the draft legislation.
Several renewable energy tax credits are set to expire at the end of this year if Congress does not renew them, including tax credits for wind, biofuels and green buildings and appliances.
Republicans have taken particular aim at the Wind Production Tax Credit that pays wind power producers for the first ten years of operation. Kansas Republican Rep. Mike Pompeo is leading a bipartisan coalition of 52 lawmakers in opposing the renewal of wind energy tax credits.
“The growth in wind is driven not by market demand, but by a combination of state renewable portfolio standards and a tax credit that is now more valuable than the price of the electricity the plants actually generate,” the lawmakers said in a letter to Rep. Camp, the chairman of the House Ways and Means Committee.
The Wind Production Tax Credit was first enacted in 1992 and has been extended seven times since then. Another one-year extension is estimated to cost $6 billion, according to the Joint Committee on Taxation.
While the future of wind tax credits are left blowing in the wind, the Baucus tax proposal takes aim at tax benefits enjoyed by a wide-range of industries, including the oil and gas industry.
Baucus’ plan would “limit companies’ use of accelerated depreciation to write off capital expenditures immediately — a change that would cut across many industries,” reports the Houston Chronicle.
“But some of the biggest effects would be borne by the oil and gas industry, which would be barred from immediately writing off intangible drilling costs, such as repairs, site preparation and hauling supplies,” the Chronicle adds. “Baucus’ plan also would bar taxpayers from claiming a percentage depletion for oil and natural gas wells.”
The oil and gas industry would also not be able to use “last in first out” (LIFO) accounting that allows for inventories to be “valued at the most recent price paid when calculating net profit and taxable revenue” — which allows companies to cut their taxable income if prices for their reserves go up. This has benefitted oil companies as crude prices have generally risen in the last decade.
“To limit the ability of these companies to deduct these expenses as they are incurred in the search for and production of oil and natural gas amounts to a job and growth killing tax increase,” said Bruce Thompson, president American Exploration & Production Council.
President Obama and environmentalists have criticized the oil and gas industry for an alleged $4 billion in tax breaks it receives every year. The Baucus plan takes aim at some of these tax benefits, but not all of them.
“We appreciate the effort put forth by Chairman Baucus to reform the U.S. tax code, and we are reviewing this proposal very carefully,” said Brian Staessle, spokesman for the American Petroleum Institute. “Cost recovery measures allow all kinds of companies to reinvest more money back into our economy, which creates more jobs and provides a stronger base for the generation of revenue to the government.”
“Changes to cost recovery and repeal of legitimate accounting methods like LIFO could unintentionally hit the brakes on America’s energy and manufacturing renaissance. People’s jobs are at stake, so lawmakers had better get the details of tax reform right,” Straessle added.
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