THE INTERNET TAX MORATORIUM EXPIRATION

COUNTDOWN

Tell the Senate
to Make the
Moratorium
Permanent.
Click Here to Sign the Petition Before It's Too Late.
00
DAYS
00
HOURS
00
MINUTES
00
SECONDS

Chris Prandoni

Energy Tax Hike Series: LIFO


Posted by Chris Prandoni on Monday, February 22nd, 2010, 11:01 AM PERMALINK


The President’s FY 2011 budget contains hundreds of billions of dollars in new taxes on energy production and consumption. These taxes will result in higher prices at the pump, increased utility bills and less American energy jobs as companies flee the U.S. to avoid these industry crippling taxes. The full energy tax booklet is available here.

One of these changes is how energy companies accumulating an inventory, a methodology called LIFO. This change will result in billions of dollars of new taxes.

When companies purchase items to sell later, they are accumulating an “inventory.”  When a good is sold, the profit is the sales price minus the inventory cost.  Since 1938, companies have had a choice when determining which parts of their inventory they report to calculate the profit on a good sold.  Under “first-in, first-out” (FIFO), the oldest parts of the inventory are what are used to make this determination.  Many companies, however, choose to use the “last-in, first-out” (LIFO) method, whereby the newest inventory purchased is what’s used in the profit calculation.

The LIFO method is most valuable for companies that see the prices of their inventory rise over time.  Let’s say I have a $10 item I bought several years ago, and a $12 item I bought this year.  I want to sell an item for $15.  FIFO inventory gives me a profit of $5 ($15-$10).  LIFO inventory gives me a profit of $3 ($15-$12).  I would only pay taxes on $3 of profit, not $5.

The difference between the FIFO profit ($5) and the LIFO profit ($3) is $2.  This $2 becomes part of a “LIFO reserve.”  Companies must keep track of this LIFO reserve, which in recent years has been the target of tax increase proposals by members of both political parties.

The FY 2011 Administration Budget calls for $60 billion over ten years in new taxes. This impact directly raises taxes on the oil and gas industry by $23-26 billion in new taxes.

Companies should not have to pay taxes merely on inflation.   Yet that is exactly what forcing companies to use FIFO would do.  At the very least, companies using a long-standing and perfectly-reasonable inventory accounting standard should not be punished after the fact by being taxed on phantom “reserves.”

LIFO is used most often by energy companies.  Taxing LIFO reserves is a clear attempt to slap an unfair tax on energy manufacturers merely to exact a political price.  The economic price will be borne by the American people, who will end up paying this “inventory tax” in the form of higher energy prices.  The most likely scenario is that taxing LIFO reserves and requiring FIFO going forward will be imposed strictly on energy manufacturers.  It’s the ultimate goal of tax increasers, though, to repeal LIFO altogether.

Check out the full table of energy tax increases and the industry impact numbers and a PDF about LIFO here.

More from Americans for Tax Reform

Top Comments


Energy Tax Hike Series: Repeal Expensing of Intangible Drilling Costs


Posted by Chris Prandoni on Wednesday, February 17th, 2010, 12:59 PM PERMALINK


The President’s FY 2011 budget contains hundreds of billions of dollars in new taxes on energy production and consumption. These taxes will result in higher prices at the pump, increased utility bills and less American energy jobs as companies flee the U.S. to avoid these industry crippling taxes. The full energy tax booklet is available here.

One of these changes is repealing the expensing of intangible drilling costs which will result in billions of dollars of new taxes.

To encourage companies to continue developing oil deposits, they have the option to expense intangible drilling costs (IDC). Expensing IDC has proved vital in attracting investment in large up-front-risk projects, such as oil and natural gas exploration. Expensing costs include: labor, fuel, repairs, hauling, and supplies necessary for drill preparation and well construction.
Obama’s budget repeals IDC expensing which increases taxes by $1.202 billion in 2011 and $7.839 billion by 2020.

Since drilling costs are not liquid, a company cannot sell a hole, mining operations have been allowed to deduct these costs as first year expenses. Otherwise, oil explorers recover their initial investment over the lifespan of the property through its depreciation allowance. As such, explorers in failed mining operations will never recover their drilling costs deductions.

IDC remains relevant because although technology has advanced, concurrently has the difficulty of drilling operations. So while technology has opened up the potential for Lower Tertiary Trend mining it remains a precarious investment. Should IDC be repealed many American oil reserves could remain untapped, it would be too risky to develop them. Considering how much oil and natural gas Americans consume, it would be imprudent to discourage investors looking to develop and cultivate American oil reserves.

Repealing IDC undermines domestic oil production and increases American reliance on foreign oil. Decreased American oil production will inevitably lead to higher unemployment as fewer oil ventures will be undertaken. Similarly, less oil production will have the unintended consequence of decreasing government revenue. It is for all of these reasons that well-established IDC practices should remain in place.

Check out the full table of energy tax increases and the industry impact numbers and a PDF about the repealing of expensing of intangible drilling costs document here. 

More from Americans for Tax Reform

Top Comments


Energy Tax Hike Series: Taxing of Foreign Earned Income


Posted by Chris Prandoni on Tuesday, February 16th, 2010, 9:26 AM PERMALINK


The President’s FY 2011 budget contains hundreds of billions of dollars in new taxes on energy production and consumption. These taxes will result in higher prices at the pump, increased utility bills and less American energy jobs as companies flee the U.S. to avoid these industry crippling taxes. The full energy tax booklet is available here.

One of these changes is how the US government taxes foreign earned income resulting in billions of dollars of new taxes.

When company X’s subsidiary earns income in a country not the United States, the subsidiary’s income is subject to the countries system of taxation that it was earned in. When company X wants to bring the subsidiaries earnings back to the US, the subsidiary’s profits, which were already taxes by a foreign country, are then taxed again by the US government.

The Obama budget includes provisions to modify how dual capacity taxpayers report income and reform the rules allowing deferral of certain foreign income. By changing common accounting techniques these new provisions will raise taxes on American energy companies by $8.5-12 billion by 2020.

Tax disincentive efforts focus on the punitive measures against foreign operations of U.S. based oil and gas companies. Subjecting American energy companies to double taxation will greatly impact foreign and domestic investments putting American companies at a competitive disadvantage.

The Obama tax increase has two components: it looks to determining tax credits on a pooling basis and prevent the splitting of foreign income and foreign takes.

Currently, foreign sourced income is taxed according to two separate categories: general and passive. While it differs slightly country by country, ‘passive income' is income from capital gains, dividends, investments and so forth. ‘General’ income is all other income and is taxed at a higher rate than passive income. The Obama budget proposes to end the present distinction between passive and general income. Conflating the two categories, passive and general, results in a net tax increase because the majority of income earned is general and is taxed at a much higher rate.

The second way this year’s budget looks to raise money is by “splitting” creditable foreign taxes from associated foreign income. As such, a tax credit could be allowed for foreign taxes on income not subject to U.S. federal income tax.

Check out the full table of energy tax increases and the industry impact numbers and a PDF of the taxing of foreign earned income document here.

More from Americans for Tax Reform

Top Comments


Energy Tax Hike Series: Deferred Interest Deduction for Energy Companies


Posted by Chris Prandoni on Monday, February 15th, 2010, 9:37 AM PERMALINK


The President’s FY 2011 budget contains hundreds of billions of dollars in new taxes on energy production and consumption. These taxes will result in higher prices at the pump, increased utility bills and less American energy jobs as companies flee the U.S. to avoid these industry crippling taxes. The full energy tax booklet is available here.

One of these changes is how energy companies deduct deferred interest which will result in billions of dollars of new taxes.

In the simplest of terms, energy companies based in the United States who have foreign operations are allowed to claim a income tax deduction on their US taxes for foreign expenses. This allows companies to deduct their expenses in the year they were incurred.

Traditionally, oil producers have been able to deduct approximately 15% of their income while coal producers have deducted 10%. Comparatively, sulphur and uranium producers have been able to deduct 22%.   

The Presidents proposed budget will prevent companies from being able to deduct expenses related to foreign activity until profits from those activities are repatriated to the US. This forces the companies to realize their profits first before they can deduct expenses.

In this instance, a deduction delayed is a deduction denied. By waiting until the foreign earned profits are repatriated, inflation has eaten away at the real value of the deduction.

For example, assuming a historical inflation rate of 3 percent, a $10,000 tax deduction would only be worth $5,000 in less than 25 years. Many of the investments made by energy companies overseas are long-term projects whereby real profits may not realized until years later.

The impact on the oil and gas industry is expected to be $2.6 billion – a cost that will be passed onto consumers in the form of higher energy prices.

Check out the full table of energy tax increases and the industry impact numbers and a PDF of the deferred interest document here. 

More from Americans for Tax Reform

Top Comments


Energy Tax Hike Series: Modify Cellulosic Biofuel Credit


Posted by Chris Prandoni on Friday, February 12th, 2010, 12:14 PM PERMALINK


The President’s FY 2011 budget contains hundreds of billions of dollars in new taxes on energy production and consumption. These taxes will result in higher prices at the pump, increased utility bills and less American energy jobs as companies flee the U.S. to avoid these industry crippling taxes. The full energy tax booklet is available here.

One of these changes is a modification in the cellulosic biofuel tax credit which will result in billions of dollars of new taxes.

Taxpayers who produce and use cellulosic biofuel are eligible for a tax credit. Cellulosic biofuel is defined as “any liquid that is produce from any ignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis and meets the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act. (Obama budget)”

This Obama budget has proposed to change the requirements necessary to receive the aforementioned tax credit. Many paper companies produce a biofuel that qualifies them for the cellulosic tax credit, the Obama budget seeks to rescind this credit raising taxes on paper companies by $6.569 billion in 2011 and 24 billion by 2020.

When wood is turned into pulp to make paper the process creates a byproduct called black liquor. Black liquor, an extremely energy efficient fuel, is used by paper companies to power their mills. Eligibility for the tax credit, which was 50 cents per gallon, was predicated on mixing at least 0.1% diesel fuel with black diesel.

The paper and pulp industry in the United States is a relatively small earning $68 billion in 2006. In 2011 alone, Obama’s budget proposals represent a 9.5% increase on paper and pulp companies, an enormous amount.  

Check out the full table of energy tax increases and the industry impact numbers and the PDF of the cellulosic biofuel tax credit with more information is available here.

Top Comments


Senate Urged to Keep Card Check Out of Jobs Bill


Posted by Chris Prandoni on Tuesday, January 19th, 2010, 1:43 PM PERMALINK


The Alliance for Worker Freedom sent the following letter to all Senators urging them to reject any rumored "card check" provisions should they be included in a "Jobs Bill." Read the full letter below:

[PDF DOCUMNET]

Dear Senator:

On behalf of the Alliance for Worker Freedom, I urge you to exclude all rumored “card check” provisions from Sens. Durbin (D-Ill.) and Dorgan’s (D-N.D.) proposed “Jobs Bill.” Card check, through the precarious process of eliminating private ballot elections, would increase unemployment rates in the United States.

By making it more expensive to hire workers, unions deter businesses looking to add employees to their payroll – forcing unemployment rates up. Once a worksite is unionized, employers are forced to comply with costly union demands. Money that would have been spent on hiring a new worker is instead spent on complying with forced union contracts. Even when a business is ready to employ more workers, the new union hiring process is exponentially prolonged.

Economist Anne Layne-Farrar explains the relationship between unionization and unemployment rates:

“For every 3 percentage points gained in union membership... the following year's unemployment rate is predicted to increase by 1 percentage point and job creation is predicted to fall by around 1.5 million jobs.”

While card check’s proponents claim the provision creates jobs, Congress should remember the goal of card check is to further restrict the American workforce, a measure sure to slow any recovery.

Any serious “Jobs Bill” should look to ease the burden on businesses. With less red tape and more labor fluidity, employers will be able to expand at a natural rate. Unions, utilizing restrictions and mandates, often increase the cost of hiring a worker so much that employers decline to employ much needed help.
 
As Ms. Lyne-Farrar’s study notes, a bill which includes card check is likely to result in the loss of 600,000 jobs in the first year alone.  To include card check in a “Jobs Bill” is counterproductive. Card check’s aim is to increase unionization which only exasperates the existing double-digit unemployment.

Sincerely,
 
Brian M. Johnson, MPA
Executive Director

cc: All Members of the US Senate

Top Comments


Is a Double-Dip Recession Imminent?


Posted by Chris Prandoni on Wednesday, January 13th, 2010, 4:13 PM PERMALINK


Could Democratic policies bring about a second recession? U.S. Chamber of Commerce President Tom Donohue thinks so:

“Congress, the administration and states must recognize that our weak economy simply could not sustain all the new taxes, regulations and mandates now under consideration. It’s a sure-fire recipe for a double-dip recession, or worse.”

Nowadays, every Democratic “solution” includes a new tax, regulation, or mandate. Think carbon is bad for the environment? Mandate carbon efficiency standards. Want health care reform? Tax the top 1% of the country. Blame Wall Street for the financial crisis? Support Sen. Dodd’s financial regulation bill. The common thread between all of these Democratic proposals is that they increase the cost of doing business in America. What happens when it becomes harder to do business? People stop doing business, recession ensues.

Donohue had few positive things to say about the Obama administration and the Democratic controlled Congress. The Hill reports:

“On healthcare, Donohue said the legislation under consideration by Congress would do nothing to rein in costs and was a prescription for “fiscal insolvency and an eventual government takeover of American healthcare.”

He said the House climate bill would raise energy costs and kill jobs.

Donohue also blasted the administration’s policies on trade, hitting it for not sending to Congress pending deals negotiated by the Bush administration with South Korea, Colombia and Panama.”

Liberal writer David Ignatius puts it another way, naming the current trend, “the Californization of America.” The process of drowning in debt incurred from unsustainable government programs and the destruction of a once vibrant business atmosphere. 

Quite simply, the American economy is too weak to sustain drastic Democratic proposals. Will Democrats heed warnings from leaders like Donohue and American for Tax Reform’s Grover Norquist, or will they continue their march towards insolvency?

Top Comments


California Voters Look to Revisit Paycheck Protection


Posted by Chris Prandoni on Monday, January 4th, 2010, 12:43 PM PERMALINK


California, a state with one of the highest unionization rates, has often been a battleground for worker’s rights. With paycheck protection provisions failing to pass California’s 2005 ballot, unions have continued to spend member’s dues on political campaigns and initiatives without first asking permission from members. In 2005, California unions spent millions of dollars and thousands of man-hours successfully derailing paycheck protection reform.

Ron Nehring, Chairman of the California Republic Party, explains why paycheck protection is necessary to ensure fairness for workers, who must pay union dues, and for California’s budget, which is drowning under the quid pro quo system currently in place:  

"Such political power has served as a massive force in favor of the unsustainable spending that has forced cities like Vallejo, California into bankruptcy with unrealistic salaries and pension benefits for their unionized employees. 

Normally only a tiny fraction of Americans choose to donate to candidates or political causes. Yet many government employee unions enjoy the power to compel virtually all of their members into supporting the unions' advocacy, regardless of how the individual worker feels about that agenda."

A new coalition, the "Citizen Power Initiative," has revived this important cause and is currently collecting signatures to, once again, have Californian’s vote on the paycheck protection. 

John Stossel explains the why unions sound so appealing in theory but markedly different when practiced:

"That fact that American workers can vote to form a union sounds... democratic. Majority rules. Every worker's vote is equal. No powerful boss makes decisions for you.

Except it doesn't work out that way. Union bosses are eager to make decisions -- and spend members' dues -- in ways many of their members never would. Union dues are routinely used to build cozy relationships with certain favored politicians. If you disagree with the union bosses' choice, tough."

Unions have remained in power due to the disconnect many voters have between unions theoretical purpose- worker advocacy organizations- and the sad reality; unions are willing to sell out their members for political favors.

More from Americans for Tax Reform

Top Comments


Workers Should Direct Anger at Pension Managers, Not Students


Posted by Chris Prandoni on Tuesday, December 1st, 2009, 4:46 PM PERMALINK


With many defined benefit plans drifting towards insolvency, governments will be increasingly pressured to bailout pensions in the red. The ongoing fight in Pittsburgh between the mayor and local colleges is a harbinger of the nationwide war soon to be fought over public workers pensions.

The city of Pittsburgh has proposed a 1% tuition tax on local university and college students to help pay for the $600 million pension-fund shortfall. The proposed tuition tax would send an estimated $16 million to city workers pensions from student’s bank accounts. The underlying logic behind the tax is flawed, “students use libraries...so let’s tax them!” proponents argue. 

This tax is neither logical nor is it fair. The $16 million raised from the new tax would do little to fix the problems inherent in defined benefit plans. At best, the additional $16 million would keep the pension fund afloat for a few extra days. More obviously, taxes discourage consumption by increasing the price of an item or activity. For example, cap-and-trade, a Democratic proposal in congress, looks to reduce carbon emissions by taxing said emissions, thus, making it more expensive to use energy. It makes no sense for a city, Pittsburgh, trying to diversify from its industrial tradition to discourage higher education via taxes.

The tax is not fair because it punishes students for poorly planned/managed pension funds, something they had nothing to do with. The tax would also differentiate between students who attend different colleges: students at Carnegie Mellon would have to pay $409 under the new tax per year of school compared to the $29 students at Community College of Allegheny County. The rhetoric used to sell the education tax is that students should be taxed for using the libraries, but then why are Carnegie Mellon students taxed at 13 times a higher rate then Community College of Allegheny County students? It is clear this is just a ploy to bailout public workers pension plans.

The sad thing is that public workers have a right to be angry; many were promised the moon in retirement benefits and now will receive little to nothing. But public workers shouldn’t take out their frustration on innocent students. Raising taxes just kicks the proverbial can (in this case pension reform) down the road at the expense of a randomly selected third party, in this case students. Real reform means transitioning from notoriously bankrupt defined benefit pension plans to liquid, tangible contribution pension plans that guarantee workers a retirement account. Workers should direct their rage at pension managers not freshman.

Top Comments


Job Losses Continue Despite False Claims and Broken Promises from White House


Posted by Chris Prandoni on Monday, November 9th, 2009, 5:01 PM PERMALINK


www.workerfreedom.org

In response to October's abysmal employment numbers, the Alliance for Worker Freedom sent out the follow press release:
Click here to view AWF's press release as a PDF Document

While Obama officials tout the success of the stimulus the American economy continues to shed jobs. The Obama administration boasts that “stimulus” spending has “saved or created 650,000 jobs,” a claim that doesn’t stand up to even minimal scrutiny.

The Center for Fiscal Accountability (CFA) highlights a few instances where, at best, the Obama administration was plain wrong, and, at worst, is guilty of cooking the books. CFA links to an AP article that reports:

President Barack Obama's economic recovery program saved 935 jobs at the Southwest Georgia Community Action Council, an impressive success story for the stimulus plan. Trouble is, only 508 people work there.
(...)
About two-thirds of the 14,506 jobs claimed to be saved under one federal office, the Administration for Children and Families at Health and Human Services, actually weren't saved at all, according to a review of the latest data by The Associated Press. Instead, that figure includes more than 9,300 existing employees in hundreds of local agencies who received pay raises and benefits and whose jobs weren't saved.

While the Obama administration is busy trying to come up with 650,000 jobs it saved or created, the Alliance for Worker Freedom highlights some painfully real numbers.

  • The unemployment rate is the highest since 1983 at 10.2 percent
     
  • Male and teenage unemployment is the highest since The Great Depression
    -Unemployment rate for males is 10.7 percent
    -Teenage unemployment is 27.6 percent
     
  • Over 30,000 potential workers left the U.S. labor force in October
     
  • Labor force participation is the lowest since 1986 at only 65.1 percent
     
  • Construction industry lost 62,000 jobs
    -Heavy construction fell 13,700 as well in October
  • Manufacturing jobs lost 61,000
    -Auto-manufacturing gained 4,600 marking two months of growth
  • October saw the worst economic climate for business loans in 50 years
    -In September, loans contacted at an 11 percent annual rate
  • In the past year, business investment as fallen 19 percent
     
  • New hires have fallen 17 percent in the past year
     
  • The U.S. has lost at least 2.8 million jobs since President Barack Obama signed the “stimulus” package into law on Feb. 17

 

More from Americans for Tax Reform

Top Comments


Pages

hidden