Obama seeks to cut US oil, gas industry tax breaks

OREANDA-NEWS. President Barack Obama is renewing his call for Congress to eliminate billions of dollars in tax breaks for oil and gas companies to help pay for his proposed \$4 trillion budget for fiscal year 2016.

Obama repeatedly has urged lawmakers – so far unsuccessfully – to eliminate what he deems "subsidies" for the oil and gas sector. And Obama did not back off that approach when submitting his first budget to a Republican-controlled Congress.

Defending his budget choices today during a visit to the Department of Homeland Security, Obama said US policy makers have "got some fundamental choices to make about the kind of country we want to be."

The proposal comes as part of a broader push to overhaul US business taxes in a revenue neutral fashion, a plan that would lower the corporate tax rate to 28pc from 35pc today, while hitting untaxed foreign earnings that US companies have accumulated overseas with a one-time, 14pc tax.

While Republican leaders already are dismissing Obama's budget priorities as "more spending, more taxes and more debt," the proposal begins to lay the groundwork for negotiations with lawmakers over how to simplify the tax code and what so-called "loopholes" should be closed.

Obama's budget for the fiscal year beginning 1 October calls for eliminating a series of "oil and natural gas preferences" that the White House's Office of Management and Budget(OMB)estimates would raise \$4.1bn in 2016 and \$45.5bn from 2016-2025.

The US Treasury Department, in its so-called Greenbook, argued these provisions "distort markets by encouraging more investment in the fossil fuel sector than would occur under a neutral system."

The plan would hit domestic oil and gas producers — particularly independents — hard, by repealing expensing of intangible drilling costs, which include wages, fuel repairs, hauling and supplies needed to drill a well. That measure alone would raise \$2.3bn in 2016 and \$15.5bn over 10 years, OMB said.

The proposal likewise would do away with the percentage depletion allowance for oil and gas wells, which would increase the industry's tax burden by \$1.1bn in 2016 and \$13.3bn from 2016-2025.

The budget plan would repeal producers' ability to take the Section 199 deduction for domestic manufacturers, costing the sector another \$647mn in 2016 and \$11.9bn over the budget window.

And it would do away with deductions for tertiary injectants and passive loss limitations for working interests in oil and gas wells, while increasing the time period producers must amortize geological and geophysical expenses, an increase of \$107mn in 2016 and \$3.2bn over 10 years.

But the plan would affect the sector in a variety of other ways.

The proposal would repeal the "last in, first out" or LIFO accounting method for inventories, which is popular with refiners. But international financial reporting standards to not permit its use, the Treasury Department said. The change would affect a number of US industries, costing an estimated \$5.5bn in 2016 and \$76.1bn over 10 years. Industry trade group the American Petroleum Institute estimates oil and gas companies would have to absorb about 35pc of that tax burden or about \$26.6bn over the decade.

The proposal calls for reinstating long-lapsed Superfund taxes, which once included a 9.7?/bl excise tax on crude and refined products. OMB estimates reimposing Superfund taxes would raise \$1.6bn in 2016 and \$21.2bn over 10 years. API figures half of that burden or \$10.6bn would fall on the oil and gas sector.

The proposal would increase funding for the Oil Spill Liability Trust Fund, raising \$105mn in 2016 and \$1.6bn over the budget window.

Overall, API projects Obama's tax plan would cost the sector about \$95bn over a decade. API president Jack Gerard said Obama's proposed tax increases would jeopardize US competitiveness and discourage future investment. "We need policies that will encourage investment, and higher taxes are not the answer," Gerard said.

Congressional Republicans today rejected the plan as a political non-starter.

US House of Representatives Budget Committee chairman Tom Price (R-Georgia) and Senate Budget Committee chair Mike Enzi (R-Wyoming) said Obama has submitted "yet another budget proposal that is focused on the same tired agenda that has failed to deliver" for US families.