The Texas Society of CPAs has issued an analysis of the Obama administration’s call for eliminating special tax breaks for domestic oil and gas production and come out firmly against any repeal.
President Obama sent a letter Tuesday to congressional leaders urging them to eliminate the tax breaks, arguing that the money was needed to reduce the federal budget deficit and could be used to help fund renewable energy development (see Obama Urges Elimination of Oil Producer Tax Breaks). The oil and gas industry currently receives over $4 billion a year in tax subsidies, Obama noted.
With rising gasoline prices, oil companies are reporting near-record profits this quarter. ExxonMobil reported first-quarter earnings Thursday of $10.7 billion, a 69 percent jump over the year-ago quarter. Royal Dutch Shell reported $8.78 billion in net profits this quarter, a 60 percent increase from the year-ago quarter.
Senate Finance Committee Chairman Max Baucus, D-Mont., said Thursday he plans to draw up legislation to eliminate the Section 199 manufacturing deduction for the largest oil and gas companies, reduce the foreign tax credit for oil royalty payments to foreign governments, and impose an excise tax on certain Gulf oil leases (see Baucus Plans to Draft Legislation to End Oil Tax Subsidies).
The Texas Society of CPAs’ Federal Tax Policy Committee addressed the issue in its “Analysis of Legislative Proposals to Repeal Certain Tax Treatments of Domestic Oil and Gas Exploration and Development”.The committee agrees that reducing the deficit is of utmost importance, but said that any effort to cut tax incentives for oil companies and raising taxes on oil and gas exploration and development should be weighed against its potential to exacerbate the current underemployment issue, and the need for a secure source of energy.
As noted in the analysis, the committee said it believes repealing tax benefits and allowances for the industry could adversely impact the state’s oil and gas industry, and the economies of Texas and the U.S.
In addition, the committee also feels that proposed changes to the Tax Code would result in a significant shift in the industry’s capital investment, contributing to slower economic growth and potential job losses for many small independent producers and drilling companies.
Currently in Texas, the oil and gas industry provides more than 1.7 million jobs and accounts for nearly 25 percent of the state’s economy. Nationally, the industry supplies jobs to 9.2 million workers, which 7.5 percent of the entire U.S. economy.
Also of note, the industry has invested more than $2 trillion in domestic capital in the last 10 years and has paid nearly $100 billion in federal income taxes in 2008 alone. When taken into consideration, offshore oil wells also account for 40 percent of the oil consumed in the U.S., the committee noted. This action helps the country become less dependent on foreign energy outlets. Maintaining current tax policies that continue to promote domestic oil and gas exploration and development helps prevent revenue and jobs going to foreign producers.
Lastly, the committee concluded that tax policies and accounting treatments are appropriate and needed to attract investors to oil and gas exploration within the U.S. Without such tax treatments, capital and resources may not be available for future oil and gas projects, which would adversely affect employment, economic recovery and the dependence on less stable foreign energy suppliers.
“Changes to the tax benefits that have helped build a strong energy industry affect Texas and American businesses and households,” the analysis concluded. “Congress should carefully consider the far-reaching effects of any proposed changes.”
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