The oil and natural gas industry does not actually receive any tax “subsidies” from the federal government.
The truth is that the oil and gas industry receives the same kinds of tax treatments that every other manufacturing or extractive industry receives in the federal tax code. There is nothing uncommon or out of the mainstream of tax treatments about any of the provisions that have been repeatedly proposed for repeal.
So how did all of this misinformation get started? It all began in 2009.
Within days of being sworn in as the nation’s 44th President, Barack Obama ordered his staff to scour the tax code for any provision that was relevant to the oil and gas industry, and promptly began proposing them for repeal. The oil and gas industry has always been an easy target for political demagoguery, and that dynamic has played out repeatedly and consistently in this Administration.
Unfortunately, most media outlets and reporters have chosen to basically repeat the Administration’s mantra that these tax treatments – several of which have been in the tax code for almost a century – are somehow unique, specific to the oil and gas industry, and are “subsidies” for “big oil”.
A great example of just how inaccurate this depiction is applies to Percentage Depletion, which has been a feature of the tax code since 1913, meaning it will be a full century old this year.
Basically, Percentage Depletion is the oil and gas industry’s version of a depreciation deduction for its main asset, which is the oil and natural gas in the ground, commonly known as its reserves.
Every industry of any kind is allowed a depreciation deduction on its assets under the U.S. Tax Code, but, far from being a “subsidy” for “big oil”, this tax treatment was in fact repealed for all integrated oil companies, i.e., ExxonMobil, Shell, BP, etc., in 1975, and is today available only to independent producers and royalty owners.
Another great example of the specious mischaracterization of these tax treatments is the Manufacturer’s Tax Deduction, more commonly referred to as Section 199. The Section 199 provision was enacted by congress in 2004 as a means of encouraging manufacturers to relocate overseas jobs to the U.S., and is in no way specific to or limited to the oil and gas industry.
In fact, the oil & gas industry’s ability to take advantage of this provision has already been singled out for limitation – in 2008, Congress reduced the industry’s deduction under this provision to 2/3rds of what other manufacturing industries are allowed to deduct.
The tax code contains a couple of credits related to the oil and gas industry – the Enhanced Oil Recovery (EOR) Tax Credit, and the Marginal Well Tax Credit.
Far from being “subsidies” to “big oil”, these tax credits are used almost exclusively by small to mid-size independent producers who tend to become the operators of marginal oil and gas fields as they age and are divested by the larger companies.
The EOR credit was implemented in 1990, and the Marginal Well Credit was signed into law by President Bill Clinton in 1994.
Finally, let’s talk about Intangible Drilling Costs (IDCs), another feature of the federal tax code that will enjoy its’ 100th birthday in 2013.
Basically, IDCs are the costs incurred by the oil and gas industry in the drilling of its wells. Since drilling wells is the only means of finding oil and natural gas, IDCs essentially amount to what any other industry would be able to deduct as a part of its cost of goods sold, a concept of accounting and tax law as old as the tax code itself.
Independent producers and royalty owners are allowed an election to either a) expense these costs in the year they are incurred, or b) amortize them over a 5-year period. Again, most media reports commonly characterize this as a “subsidy” for “big oil”, as does the Obama Administration. The truth is that “big oil” – the ExxonMobils, Chevrons, Shells and BPs of the world – benefit much less from this tax treatment, it having been severely limited to them by congress in 1986, and again in 1992.
And the truth also is that IDCs are not a “subsidy” to anyone engaged in the oil and gas business.
Bottom line: Despite the Administration’s rhetoric that has been so widely repeated in the press, the tax treatments in question are not “subsidies” that are in any way outside of the mainstream of tax treatments commonly available to all U.S. industries.
It would be a benefit to everyone if media outlets and their reporters would quit repeating Administration talking points on this issue, and instead engage in some real journalism on the subject.
I doubt anyone in the oil and gas industry will be holding their breath waiting for that to happen.
http://www.forbes.com/sites/davidblackmon/2013/01/02/oil-gas-tax-provisions-are-not-subsidies-for-big-oil/
The truth is that the oil and gas industry receives the same kinds of tax treatments that every other manufacturing or extractive industry receives in the federal tax code. There is nothing uncommon or out of the mainstream of tax treatments about any of the provisions that have been repeatedly proposed for repeal.
So how did all of this misinformation get started? It all began in 2009.
Within days of being sworn in as the nation’s 44th President, Barack Obama ordered his staff to scour the tax code for any provision that was relevant to the oil and gas industry, and promptly began proposing them for repeal. The oil and gas industry has always been an easy target for political demagoguery, and that dynamic has played out repeatedly and consistently in this Administration.
Unfortunately, most media outlets and reporters have chosen to basically repeat the Administration’s mantra that these tax treatments – several of which have been in the tax code for almost a century – are somehow unique, specific to the oil and gas industry, and are “subsidies” for “big oil”.
A great example of just how inaccurate this depiction is applies to Percentage Depletion, which has been a feature of the tax code since 1913, meaning it will be a full century old this year.
Basically, Percentage Depletion is the oil and gas industry’s version of a depreciation deduction for its main asset, which is the oil and natural gas in the ground, commonly known as its reserves.
Every industry of any kind is allowed a depreciation deduction on its assets under the U.S. Tax Code, but, far from being a “subsidy” for “big oil”, this tax treatment was in fact repealed for all integrated oil companies, i.e., ExxonMobil, Shell, BP, etc., in 1975, and is today available only to independent producers and royalty owners.
Another great example of the specious mischaracterization of these tax treatments is the Manufacturer’s Tax Deduction, more commonly referred to as Section 199. The Section 199 provision was enacted by congress in 2004 as a means of encouraging manufacturers to relocate overseas jobs to the U.S., and is in no way specific to or limited to the oil and gas industry.
In fact, the oil & gas industry’s ability to take advantage of this provision has already been singled out for limitation – in 2008, Congress reduced the industry’s deduction under this provision to 2/3rds of what other manufacturing industries are allowed to deduct.
The tax code contains a couple of credits related to the oil and gas industry – the Enhanced Oil Recovery (EOR) Tax Credit, and the Marginal Well Tax Credit.
Far from being “subsidies” to “big oil”, these tax credits are used almost exclusively by small to mid-size independent producers who tend to become the operators of marginal oil and gas fields as they age and are divested by the larger companies.
The EOR credit was implemented in 1990, and the Marginal Well Credit was signed into law by President Bill Clinton in 1994.
Finally, let’s talk about Intangible Drilling Costs (IDCs), another feature of the federal tax code that will enjoy its’ 100th birthday in 2013.
Basically, IDCs are the costs incurred by the oil and gas industry in the drilling of its wells. Since drilling wells is the only means of finding oil and natural gas, IDCs essentially amount to what any other industry would be able to deduct as a part of its cost of goods sold, a concept of accounting and tax law as old as the tax code itself.
Independent producers and royalty owners are allowed an election to either a) expense these costs in the year they are incurred, or b) amortize them over a 5-year period. Again, most media reports commonly characterize this as a “subsidy” for “big oil”, as does the Obama Administration. The truth is that “big oil” – the ExxonMobils, Chevrons, Shells and BPs of the world – benefit much less from this tax treatment, it having been severely limited to them by congress in 1986, and again in 1992.
And the truth also is that IDCs are not a “subsidy” to anyone engaged in the oil and gas business.
Bottom line: Despite the Administration’s rhetoric that has been so widely repeated in the press, the tax treatments in question are not “subsidies” that are in any way outside of the mainstream of tax treatments commonly available to all U.S. industries.
It would be a benefit to everyone if media outlets and their reporters would quit repeating Administration talking points on this issue, and instead engage in some real journalism on the subject.
I doubt anyone in the oil and gas industry will be holding their breath waiting for that to happen.
http://www.forbes.com/sites/davidblackmon/2013/01/02/oil-gas-tax-provisions-are-not-subsidies-for-big-oil/
