IPAA Testimony on Industry Tax Treatment for Committee on Oversight and Government Reform Hearing

IPAA Testimony on Industry Tax Treatment for Committee on Oversight and Government Reform Hearing

For an April 22nd Oversight and Government Reform Committee Subcommittee on the Environment hearing, IPAA submitted testimony on the tax treatment of the natural gas and oil production industry.

“… a troubling undercurrent of effort to suppress American oil and natural gas production appears directed at numerous factors that affect production. Among these is a false claim of “tax subsidies” for oil and natural gas production that are, in fact, normal business deductions…

“One path [supported by anti-oil and natural gas interests] to reducing American oil and natural gas production involves restricting its capital investment. Because all oil and natural gas production declines – or depletes – over time, new production must replace the lost production. New wells must be drilled. Existing wells must be maintained even as their production diminishes. For independent producers, most of its capital comes through the well head. That is, the revenue it receives from selling its production becomes the capital it needs to drill and maintain wells. Clearly, tax policy then plays a significant role. Taxes remove capital.

“Oil and natural gas tax policies will continue to draw attacks from those anti-oil and natural gas factions that want to cripple American production. Much of the rhetoric surrounding these attacks will hide behind the red herring of “tax subsidies for Big Oil” when the reality is that the tax provisions are not “subsidies’ but normal business deductions. The impact of changing the provisions will fall on independent oil and natural gas producers, substantially on small businesses, and on royalty owners such as retirees, ranchers and farmers who own oil and natural gas mineral resources underlying their properties.

“Two of the most targeted tax provisions are the treatment of intangible drilling and development costs (IDC) and percentage depletion…

“If new policies reduce American demand for oil and natural gas, production and imports will diminish. However, artificial politic efforts to suppress American supply will not reduce demand; it will only lead to a return to an import dependent energy structure with attendant energy security risks.

“False attacks on “tax subsidies” targeting American oil and natural gas producers and royalty owners will reduce supply while hurting independent producers, particularly small businesses, and royalty owners. They will not reduce greenhouse gas emissions. The ultimate beneficiaries of these actions would be foreign national oil companies producing with less emissions management than those in the United States. Congress should oppose these adverse policies.”