CTJ has just released a report on Big Oil, The 110th Congress Should End Tax Subsidies for Big Oil (Dec 21, 2006). It notes that the American public and the incoming Congress seem to have finally wakened to the fact that Big Oil is making runaway profits and is in no need of a supportive subsidy from the tax system. There's even talk of instituting a windfall profits tax or carbon tax, for both revenue and environmental reasons. But CTJ thinks Congress should first focus on just getting rid of the many loopholes that let Big Oil pay much less than its fair share of taxes to the federal government, many of them added or increased in the ridiculous Energy Act of 2005. Put simply:
If the public debate revolves around whether or not Big Oil needs to be subsidized through the tax code at a time when oil prices are at an all-time high, it will be much more difficult for the energy companies to win the debate. As a practical policy matter, it makes sense for Congress to get energy companies to simply pay the taxes they would owe without special loopholes, before considering adding a new tax on their excess profits.
For the Joint Committee on Taxation's spreadsheet on the revenue costs of the various loopholes for Big Oil in the 2005 Act, see this link. For various other JCT documents on the energy bill, see here.
Here's the list of the biggest tax expenditures benefitting Big Oil.
1. an immediate deduction for "intangible" drilling costs (wages, materials for wells, etc.) that are normally expensed over the life of property in other industries
2. an immediate deduction for "percentage depletion" for oil and gas properties that amounts to a flat percentage of gross revenues off the top, whereas other industries have to expense such costs over the properties useful life (and the Big Oil Giveaway (energy) Bill of 2005 actually increased the benefit to Big Oil of this provision!)
3. an almost immediate two-year amortization of costs for searching for oil--even when it is discovered
4. an immediate deduction of 50% of the costs of certain equipment for refining--created as an "incentive" to Big Oil in the Big Oil Giveaway (energy) Bill of 2005 when costs per barrel were already over $50!
5. an immediate deduction for "domestic manufacturing" --a loophole extended to Big Oil by a 2004 "legislative slight-of-hand", when Congress was required to repeal a provision that aided manufacturers in violation of international trade law and enacted an even bigger giveaway that was extended to industries like Big Oil that weren't even eligible for the repealed provision
6. even faster accelerated depreciation for natural gas distribution lines--also added by the Big Oil Giveaway (energy) Bill of 2005, when the existing accelerated depreciation system already provided front-loaded depreciation much faster than economic depreciation
7. credits (dollar for dollar reduction of taxes) for foreign taxes that Big Oil probably doesn't actually pay
As the CTJ article notes, "the next Congress has many options to close unnecessary and wasteful energy-related tax loopholes. " Let's hope that it starts out with at least this list of wasteful items so Big Oil can pay its fair share of taxes.
And for my Christmas wish: Perhaps Congress can finally figure out a way to get those tax funds to places that they are really needed, like the victims of Hurricane Katrina in New Orleans.
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