The President’s Energy Tax Hikes: Section 199 Deduction

The president’s State of the Union address last month had lots of good stuff in it about domestic oil and natural gas production. Unfortunately, the president’s actions are speaking louder than his words.

His just-released 2013 budget includes proposals to increase taxes on oil and gas companies – more than $86 billion over 10 years – that would take the country in the wrong direction on energy. Research shows higher energy taxes would discourage production, lead to fewer well-paying American jobs and increase our reliance on imports.

Today, let’s take a look at one of his tax-hike proposals – repealing the Section 199 manufacturer’s deduction only for oil and natural gas companies. Benefit to Washington: $11.6 billion over 10 years.

Here’s what the president said back on Jan. 24:

“Let’s remember how we got here.  Long before the recession, jobs and manufacturing began leaving our shores.  Technology made businesses more efficient, but also made some jobs obsolete.”

Indeed, which is why the 2004 “American Jobs Creation Act” included the Section 199 deduction. It was extended to all U.S. manufacturers, to help address the very problem the president identified by benefiting employers who maintain and create well-paying U.S. jobs.

The president went on to talk about tax policies he said would foster more American manufacturing:

“If you’re an American manufacturer, you should get a bigger tax cut.  If you’re a high-tech manufacturer, we should double the tax deduction you get for making your products here.  And if you want to relocate in a community that was hit hard when a factory left town, you should get help financing a new plant, equipment, or training for new workers.”

Too bad the president’s affinity for American manufacturing is more rhetoric than reality – demonstrated by his renewed proposal to eliminate the Section 199 deduction only for American oil and natural gas companies. Talk of tax fairness from the administration is especially hollow here. Under Section 199, a 9 percent deduction is available to all qualifying income from all domestic manufacturers – except that the deduction for the oil and gas industry is limited to 6 percent, and now the president wants to eliminate that.

If the objective, as the president said, is more domestic oil and natural gas production – creating more U.S. energy and more U.S. jobs – then raising taxes on these companies is the wrong way to go. Higher taxes on an industry that already pays more than $86 million a day to the federal treasury and which contributed $476 billion to the economy in 2010 would likely cost jobs, not create them, while undermining efforts to reduce imports.

View the original article here

The President’s Energy Tax Hikes: Expensing of Intangible Drilling Costs

Yesterday, we discussed the president’s 2013 budget proposal to repeal the Section 199 manufacturer’s deduction for oil and natural gas companies – showing the disconnect between his call for more domestic oil and natural gas production and boosting U.S. manufacturing. Today, let’s look at another proposed energy tax increase in the president’s spending plan: repealing the expensing of intangible drilling costs (IDC).

Repealing IDC would generate $13.9 billion for the U.S. Treasury over 10 years. But it would eliminate a 99-year-old section of the tax code that has fostered innovation and exploration in the oil and natural gas business – playing a major role in the development of our energy resources for nearly a century.

Here’s what the president said in his State of the Union address:

“We have a huge opportunity, at this moment, to bring manufacturing back. But we have to seize it. Tonight, my message to business leaders is simple: Ask yourselves what you can do to bring jobs back to your country, and your country will do everything we can to help you succeed.”

And:

“We have a supply of natural gas that can last America nearly 100 years. And my administration will take every possible action to safely develop this energy.”

More manufacturing, jobs and energy. We’re for all three. Unfortunately, the president’s energy tax increases, including the IDC repeal, would make all three harder.

Here’s why: When energy companies drill they incur costs that can’t be recovered, such as site preparation and labor, representing 60 to 80 percent of the cost of the well. These costs accrue whether the well produces oil or natural gas or is a dry hole. Take away IDC and you increase the cost of production. Increase production costs and you discourage new energy development, which affects manufacturing and energy supply.

Since 1913 companies have been able to expense drilling costs – much like the Research & Development deduction enjoyed by other industries. Repealing IDC would discourage the very things the president wants: innovation, risk-taking, investment and new drilling activity – which helps the manufacturing sector as well as overall economic growth. We’re seeing that right now in states like North Dakota, Pennsylvania and Texas.

The president is right: There’s huge opportunity to help spur U.S. manufacturing and to capitalize on America’s vast energy riches – including the second-largest natural gas reserves in the world that are being unlocked through hydraulic fracturing.

With the right policies in place, America’s oil and natural gas companies can be a catalyst for both. Greater access to our resources could generate 1 million new U.S. jobs by 2016 while making our energy future more secure. Raising taxes on America’s oil and natural gas companies, which already are paying $86 million a day to the U.S. Treasury, will squander the opportunities the president mentioned. It’s the wrong policy for the jobs, energy and economic growth everyone wants.

View the original article here

The President’s Energy Tax Hikes: Section 199 Deduction

The president’s State of the Union address last month had lots of good stuff in it about domestic oil and natural gas production. Unfortunately, the president’s actions are speaking louder than his words.

His just-released 2013 budget includes proposals to increase taxes on oil and gas companies – more than $86 billion over 10 years – that would take the country in the wrong direction on energy. Research shows higher energy taxes would discourage production, lead to fewer well-paying American jobs and increase our reliance on imports.

Today, let’s take a look at one of his tax-hike proposals – repealing the Section 199 manufacturer’s deduction only for oil and natural gas companies. Benefit to Washington: $11.6 billion over 10 years.

Here’s what the president said back on Jan. 24:

“Let’s remember how we got here.  Long before the recession, jobs and manufacturing began leaving our shores.  Technology made businesses more efficient, but also made some jobs obsolete.”

Indeed, which is why the 2004 “American Jobs Creation Act” included the Section 199 deduction. It was extended to all U.S. manufacturers, to help address the very problem the president identified by benefiting employers who maintain and create well-paying U.S. jobs.

The president went on to talk about tax policies he said would foster more American manufacturing:

“If you’re an American manufacturer, you should get a bigger tax cut.  If you’re a high-tech manufacturer, we should double the tax deduction you get for making your products here.  And if you want to relocate in a community that was hit hard when a factory left town, you should get help financing a new plant, equipment, or training for new workers.”

Too bad the president’s affinity for American manufacturing is more rhetoric than reality – demonstrated by his renewed proposal to eliminate the Section 199 deduction only for American oil and natural gas companies. Talk of tax fairness from the administration is especially hollow here. Under Section 199, a 9 percent deduction is available to all qualifying income from all domestic manufacturers – except that the deduction for the oil and gas industry is limited to 6 percent, and now the president wants to eliminate that.

If the objective, as the president said, is more domestic oil and natural gas production – creating more U.S. energy and more U.S. jobs – then raising taxes on these companies is the wrong way to go. Higher taxes on an industry that already pays more than $86 million a day to the federal treasury and which contributed $476 billion to the economy in 2010 would likely cost jobs, not create them, while undermining efforts to reduce imports.

View the original article here

The President’s Energy Tax Hikes: Expensing of Intangible Drilling Costs

Yesterday, we discussed the president’s 2013 budget proposal to repeal the Section 199 manufacturer’s deduction for oil and natural gas companies – showing the disconnect between his call for more domestic oil and natural gas production and boosting U.S. manufacturing. Today, let’s look at another proposed energy tax increase in the president’s spending plan: repealing the expensing of intangible drilling costs (IDC).

Repealing IDC would generate $13.9 billion for the U.S. Treasury over 10 years. But it would eliminate a 99-year-old section of the tax code that has fostered innovation and exploration in the oil and natural gas business – playing a major role in the development of our energy resources for nearly a century.

Here’s what the president said in his State of the Union address:

“We have a huge opportunity, at this moment, to bring manufacturing back. But we have to seize it. Tonight, my message to business leaders is simple: Ask yourselves what you can do to bring jobs back to your country, and your country will do everything we can to help you succeed.”

And:

“We have a supply of natural gas that can last America nearly 100 years. And my administration will take every possible action to safely develop this energy.”

More manufacturing, jobs and energy. We’re for all three. Unfortunately, the president’s energy tax increases, including the IDC repeal, would make all three harder.

Here’s why: When energy companies drill they incur costs that can’t be recovered, such as site preparation and labor, representing 60 to 80 percent of the cost of the well. These costs accrue whether the well produces oil or natural gas or is a dry hole. Take away IDC and you increase the cost of production. Increase production costs and you discourage new energy development, which affects manufacturing and energy supply.

Since 1913 companies have been able to expense drilling costs – much like the Research & Development deduction enjoyed by other industries. Repealing IDC would discourage the very things the president wants: innovation, risk-taking, investment and new drilling activity – which helps the manufacturing sector as well as overall economic growth. We’re seeing that right now in states like North Dakota, Pennsylvania and Texas.

The president is right: There’s huge opportunity to help spur U.S. manufacturing and to capitalize on America’s vast energy riches – including the second-largest natural gas reserves in the world that are being unlocked through hydraulic fracturing.

With the right policies in place, America’s oil and natural gas companies can be a catalyst for both. Greater access to our resources could generate 1 million new U.S. jobs by 2016 while making our energy future more secure. Raising taxes on America’s oil and natural gas companies, which already are paying $86 million a day to the U.S. Treasury, will squander the opportunities the president mentioned. It’s the wrong policy for the jobs, energy and economic growth everyone wants.

View the original article here