Peters Cosponsors Bill Closing Tax Loopholes for Large Oil Companies
WASHINGTON, DC – U.S. Senator Gary Peters (MI) today announced that he has cosponsored the Close Big Oil Tax Loopholes Act, which repeals tax subsidies for the “Big 5” oil companies and raises $22 billion in savings towards deficit reduction over 10 years. The nation's five largest oil companies - BP, Exxon, Shell, Chevron, and ConocoPhillips - took home nearly $1 trillion in profits over the past decade, including $90 billion in 2014, with only a small percentage of those earnings going toward exploration and research.
“It is very concerning that some of the largest oil corporations, despite their large profits, are taking advantage of tax loopholes and subsidies at the expense of taxpayers in Michigan and across the country,” said Senator Peters. “Congress should focus on ways to cut wasteful spending, and this legislation will reduce the deficit while promoting accountability and a fairer tax code for Michigan families and small businesses.”
Provisions of the Close Big Oil Loopholes Act include:
- 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.
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