As politicians rail against oil “subsidies” and “loopholes,” there seems to be confusion in the debate about the purpose and structure of the national tax policy regarding oil and gas companies.
The truth is that the current tax structure ensures the competition and innovation of the American oil and gas industry. Revising this historic tax structure would increase the taxes on oil and natural gas companies. This will not only hurt the industry, but cost the country. IPAA, through its new Declaration of Independents initiative, decided it was time to get the facts straight:
FACT: Fossil fuels account for 78 percent of American energy production, and receive 13 percent of tax incentives.
FACT: Renewable energy sources account for 11 percent of American energy production, and receive 77 percent of tax incentives.
IPAA fleshed out the nuances:
Productivity: The oil and gas industry is productive – the industry is not being propped up by “so-called” subsidies that it receives.
Impact to Independents: Changing the tax structure will directly and negatively impact America’s independent producers – who drill 94 percent of the wells in the United States – and the overall productivity of the industry by reducing jobs and diminishing investments.
High Risk: The current tax policy reflects the high-risk activity of exploration and production and the producers’ challenge to find productive resources, as well as its capital intensity, i.e. intangible drilling costs.
Competitive: The current tax structure enables small, independent companies to compete, especially in marginal well activity, i.e. percentage depletion.
Clearly, the oil and gas industry is a productive industry which receives deductions for normal business expenses due to the high risk and expensive nature of exploration and drilling. Although people protest they just want to end the tax breaks to “Big Oil,” ending these deductions would actually diminish the smaller companies’ ability to compete with the larger oil companies. Click here for the entire in-depth analysis of the oil and gas industry tax structure.
On Monday, IPAA President & CEO Barry Russell sent a letter to Congressional leaders regarding the ongoing debt ceiling negotiations—explaining the impact repealing these normal business deductions on American oil and gas production would have on the nation. Because the independent oil and natural gas industry is vital to job creation, energy independence, investment, and infrastructure in our country, slamming the industry with increased taxes would undoubtedly damage the country.
Every time the talking heads in Washington complain about oil “subsidies” and “loopholes,” they demonstrate their ignorance on wellheads—and the issues facing the industry. Policymakers need to educate themselves on the purpose of this tax policy before our country gets hurt by legislative overhaul of this historic tax structure.