Senate Democrats target oil company tax breaks
Senate Democrats have renewed their effort to repeal tax breaks enjoyed by the US' five largest oil companies, with a promise to use the proceeds for deficit reduction.
Sponsored by senator Robert Menendez (New Jersey) and 18 other Democrats, the Close Big Oil Tax Loopholes Act would bar BP, ExxonMobil, Shell, Chevron and ConocoPhillips from taking advantage of a slate of tax benefits enjoyed by other oil and gas companies, including the Section 199 domestic manufacturing deduction, expensing of intangible drilling costs and the credit for "dual capacity" taxpayers for income taxes paid abroad.
Menendez argued that lawmakers should "stop giving away billions of taxpayer dollars to highly profitable – and often environmentally negligent – companies."
Proponents argue the measure would raise $22bn over 10 years. The bill echoes President Barack Obama's long call for repealing what he deems subsidies for the oil and gas sector.
But similar legislative efforts have gone nowhere in recent years. And with Republicans firmly in control on both sides of Capitol Hill, the bill has virtually no chance of passage in this Congress.
The proposal would bar the five from taking the 6pc deduction for domestic manufacturing that other oil and natural gas companies are entitled. Other industrial sectors saw that deduction rise to 9pc, but lawmakers in 2008 froze the oil sector's deduction at 6pc.
It would deny their ability to expense their intangible drilling costs. Today, integrated companies can write off 70pc of intangible drilling costs and amortize the rest over five years, while independent producers expense 100pc of those costs in the first year.
Under current tax rules, oil companies also are entitled to receive a dollar-for-dollar credit for income taxes paid to foreign governments. But they cannot claim that credit for royalties, bonuses and other payments. The idea behind this "dual capacity" provision is to help ensure companies with operations overseas are not taxed twice and thus placed at a competitive disadvantage.
Critics claim the oil companies have been "disguising" royalty payments to foreign government as taxes.
The Senate Democrats' plan also would bar the five companies from taking a percentage depletion allowance for oil and gas wells, which enables a producer to compute cost recovery using a percentage of the revenues from the sale of oil and gas. The bill's proponents say that under this method, a producer's deductions can exceed its capital investment.
The bill also seeks to block the companies from deducting the cost of tertiary injectants used in enhanced oil recovery. The proposal would force the companies to front the capital for tertiary injectants and then recover those costs over time.
The plan would also reopen the debate over the Energy Policy Act of 2005 by repealing a provision granting relief from royalties for oil produced in deep water for the first 5mn bl of oil equivalent produced in water depths greater than 400m (1,300ft) and the first 16mn bl produced in depths greater than 2,000m (6,500ft).
It also would do away with incentives for ultra-deep natural gas wells in the US Gulf of Mexico.
Industry trade group the American Petroleum Industry did not have an immediate reaction to the proposal.
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