• Energy Tax Facts
  • 22 Nov 13

IPAA Responds to Chairman Baucus’ Proposal on American Energy Taxes

This week, Senate Finance Committee Chairman Baucus moved forward efforts to update America’s tax code. Unfortunately, the Chairman’s draft proposal includes repealing certain historical tax provisions that are critical to the continued development of American energy such as the Intangible Drilling Costs (IDCs) deduction.

In response to Chairman Baucus’ proposal, Independent Petroleum Association of America (IPAA) president Barry Russell highlighted the negative impact repealing these provisions could have on both the American economy and our national energy output.

“To be clear, there are many problems with the nation’s tax code, but when it comes to America’s oil and natural gas industry, the current tax code, refined over the past 100 years, is an example of public policy that actually works.  Current tax rules and laws ensure that industry pays its fair share in taxes, which is now one of the most heavily taxed industries in the country.  The current tax code also encourages investment resulting in massive new U.S. energy supplies and millions of jobs.

“The result: today, America’s oil and natural gas industry is a bright spot in the economy and the envy of the world.  Just this month, for the first time in almost twenty years, we produced more oil here at home than we imported. But, the Baucus tax plan jeopardizes America’s energy renaissance.

“Congress should know that the tax policies that govern independent producers are not credits, subsidies or handouts. These provisions and deductions, which are available to nearly every American industry, enable continued investment in U.S. energy exploration and production. Independent energy producers — companies with an average of 12 employees, which drill nearly 95 percent of the nation’s oil and gas wells — are at the heart of America’s great energy revival. The current provisions in the tax code that promote continued American energy production are key to the success of these small operators.”

As IPAA President Barry Russell describes, the impact of these historic provisions in America’s economy reach far beyond the well-pad. According to a recent study released by Wood Mackenzie, repealing the IDCs deduction – the same type of deduction available to technology companies for research and development or farmers for fertilizer — would result in 190,000 jobs lost within the next year alone and 233,000 by 2019. Without the IDC deduction U.S. oil and natural gas producers would also face financial pressure to cut back their annual production by 15 to 20 percent, reducing industry spending by $407 billion between 2014 and 2023.

Repealing this century-old provision could also mean less in total government revenue. Independent oil and natural gas producers provide billions in taxes to federal and state governments, with onshore upstream taxes generating $67.7 billion in 2010 alone. Removing tax provisions like the IDCs deduction would not only hurt America’s energy output – it will hurt the American economy.

As Americans for Tax Reform stated in response to Chairman Baucus’ proposal, the current draft “inhibits domestic investment, killing thousands of American energy jobs.” Less domestic energy production, fewer jobs, and less money into states and the federal treasury – that would be the end result of cutting these historical, common-sense tax provisions. As efforts move forward to reform certain aspects of the American tax code, the importance of ensuring the continued production of our oil and natural gas resources cannot be overlooked.