Reed Seeks to Eliminate Wasteful Subsidies for Big Oil Companies
WASHINGTON, DC – In an effort to get big oil companies to pay their fair share of U.S. taxes, U.S. Senator Jack Reed (D-RI) today joined with Senator Robert Menendez (D-NJ) and several of their colleagues in introducing legislation that would repeal the enormous subsidies that are now granted to highly-profitable oil companies through tax loopholes and tax breaks. By repealing tax subsidies for the five largest oil companies (BP, Exxon, Shell, Chevron, and ConocoPhillips), this legislation would produce an estimated $22 billion in savings towards deficit reduction over ten years.
“These subsidies aren’t targeted tax cuts, they are massive corporate giveaways to big oil companies,” said Reed. “We need to take common sense steps to make sure that federal funds are used wisely. Getting rid of these kinds of enormous taxpayer-funded subsidies will save the country billions of dollars. At a time when some are unwisely talking about cutting college aid for middle class families and threatening investments in job creation, I’d rather make sure that we eliminate unnecessary expenditures.”
Even as gas prices dipped in 2014, the big five oil companies remained profitable, making $89.7 billion last year. And only a small percentage of those earnings went toward exploration and research. The Close Big Oil Tax Loopholes Act of 2015 would finally put an end to unfair taxpayer handouts to these highly profitable companies.
The Close Big Oil Tax Loopholes Act recoups taxpayer money from waived royalty payments from drilling in the Gulf of Mexico, closes loopholes in rules that oil companies exploit to avoid paying full corporate taxes in the U.S., and eliminates unwarranted subsidies.
SUMMARY OF THE CLOSE BIG OIL LOOPHOLES ACT:
- Modifications of foreign tax credit rules applicable to major integrated oil companies which are dual capacity taxpayers: U.S. taxpayers are taxed on their income worldwide, but are entitled to a dollar-for-dollar tax credit for any income taxes paid to a foreign government. U.S. oil and gas companies have been accused of disguising royalty payments to foreign governments as foreign taxes. This allows them to lower their taxes in the U.S. The bill would close this loophole that amounts to a U.S. subsidy for foreign oil production for the Big 5.
- Limitation on deduction for income attributable to the production of oil, natural gas, or primary products thereof: In 2004, Congress enacted Section 199, the domestic manufacturing tax deduction. In 2008, Congress froze the Section 199 deduction at 6% for all oil and gas activity. The bill eliminates the Section 199 deduction for the Big 5.
- Limitation on deduction for intangible drilling and development costs: Would deny the Big 5 oil companies the option of expensing Intangible Drilling Costs (IDCs) and require such costs be capitalized. IDCs are expenditures such as wages, fuel, repairs, hauling, and supplies necessary for the drilling of oil wells. Currently, integrated oil companies can expense 70% of the cost of IDCs. The bill requires the Big 5 to capitalize all of its IDC costs.
- Limitation on percentage depletion allowance for oil and gas wells: Firms that extract oil and gas are permitted a deduction to recover their capital investment under one of two methods. Cost depletion allows for the recovery of the actual capital investment-the costs of discovering, purchasing, and developing the well-over the period the well produces income. Under this method, the taxpayer's total deductions cannot exceed its original investment. Percentage depletion allows the cost recovery to be computed using a percentage of the revenue from the sale of the oil or gas. Under this method, total deductions could (and often do) exceed the taxpayer's capital investment. The bill repeals percentage depletion for the Big 5.
- Limitation on deduction for tertiary injectants: Tertiary injectants are used in enhanced oil recovery to drive more oil from an existing well. Currently, oil companies are allowed to deduct the cost of tertiary injectants rather than capitalizing their costs and recovering them over time. The bill requires the Big 5 to capitalize the cost of tertiary injectants it uses during the year and recover those costs over time.
- Repeal of Outer Continental Shelf deep water and deep gas royalty relief: Repeals Sections 344 and 345 of the Energy Policy Act of 2005. Section 344 extended existing deep gas incentives and Section 345 provided additional mandatory royalty relief for certain deepwater oil and gas production. These changes will help ensure that Americans receive fair value for federally-owned fossil fuel resources.
- Deficit Reduction: All savings realized as the result of the bill's elimination of the tax breaks and other subsidies currently going to the major integrated oil companies are devoted to deficit reduction.