Chris Prandoni

Senator Inhofe Urges EPA to Reconsider Endangerment Findings


Posted by Chris Prandoni on Thursday, February 25th, 2010, 1:41 PM PERMALINK


[PDF Document]

Dear Senator Inhofe:

On behalf of Americans for Tax Reform, and millions of taxpayers, I would like to thank you for your report titled Consensus Exposed: The CRU controversy, which formally requested the Environmental Protection Agency (EPA) to reconsider its endangerment finding on the basis that they relied on the United Nation’s Intergovernmental Panel on Climate Change (IPCC) reports, which have now been revealed to be full of faulty science.

Your response to the EPA’s endangerment findings is wholly appropriate given the de-legitimization of the once esteemed University of East Anglia‘s Climatic Research Unit (CRU), and subsequently, the United Nation’s IPCC reports, many of which were authored by CRU scientists or drew heavily from CRU findings.  

Unable to pass comprehensive climate legislation through Congress, members of the current administration have attempted to shape American energy policy via the EPA, a contentious point your report confronts head on. Questioning the EPA’s authority to implement broad energy regulation while challenging the justification for such regulation, your thorough report rebuts EPA’s most convincing arguments.

This refutation of the EPA is critical because of the enormous impact EPA regulation or cap-and-trade like legislation would have on American people and American businesses. The EPA should not be the chief regulator of America’s economy. 

The effect of suggested energy taxes would be devastating; resulting in lost income, lost jobs, and higher energy prices. Energy taxes deter foreign investment negatively impacting future growth. In order to compensate for higher energy prices, American companies would be forced to raise the price of their products, reduce their payroll, or ship jobs overseas. Higher energy prices directly affect consumers as Americans will see their energy bills soar. None of these results are desirable.

I would like to commend your efforts in standing up for taxpayers, small businesses, consumers and American family’s nationwide. Thank you for your leadership.
  
Onward,
 
Grover G. Norquist
GGH/bmj

Cc:    All Members of the US Senate
          Lisa Jackson, EPA Administrator
 

More from Americans for Tax Reform

Top Comments


Energy Tax Hike Series: Repeal of Percentage Depletion Deduction


Posted by Chris Prandoni on Thursday, February 25th, 2010, 10:54 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 repealing the percentage depletion tax deduction. This change will result in billions of dollars of new taxes.

The IRS defines depletion as “the using up of natural resources by mining, quarrying, drilling, or felling. The depletion deduction allows an owner or operator to account for the reduction of a product’s reserves.” For over a century there have been two ways to calculate deductions: cost depletion and percentage depletion.

The preferred method of deduction, percentage depletion allows the producer to deduct the gross income derived from extracting fossil fuels or other minerals. Originally implemented to encourage domestic development of natural resources, percentage depletion allows for producers to collect a percentage, depending on the resource being mined, of their income tax-free.

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

  • Impact on oil and natural gas: Repealing percentage depletion will raise taxes by $522 million in 2011 and 10.026 billion by 2020
  • Impact on hard mineral fossil fuels (coal): – Repealing percentage depletion will raise taxes by $57 million in 2011 and $1.062 billion by 2020.
  • Total impact: $579 million tax increases in 2011 and 11.088 billion in tax increases by 2020

    Mining natural resources continues to be one of the riskiest investments and requires enormous amounts of capitol. Furthermore, it may take years to recuperate investments because resource extraction does not begin immediately. Percentage depletion has gone a long way to alleviate the concerns of investors and small companies, its repeal will only add uncertainty to already weary producers.    
    While producers of other minerals (gravel, clay, gold, etc) will be allowed to continue percentage depletion discounts, oil, natural gas and coal producers will face enormous tax increases.

Check out the full table of energy tax increases and the industry impact numbers

and

a PDF document further explaining percentage depletion.

More from Americans for Tax Reform

Top Comments


Energy Tax Hike Series: Passive Loss Exception Repeal


Posted by Chris Prandoni on Wednesday, February 24th, 2010, 1:41 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 passive loss tax exception for energy companies. This change which will result in billions of dollars of new taxes.

A generation ago, “tax shelters” were popular and legal tax-avoidance strategies.  The most common form a tax shelter took back then was for someone to become a limited partner in a partnership that had losses year after year.  These losses would be passed along to the partner-investor, who would use them to offset other income.  There were few restrictions on this practice.

That all changed in 1986 with the passage of the Tax Reform Act.  Congress required “passive losses” (losses incurred by businesses in which the taxpayer didn’t have any material participation) to be carried forward, not used against other income.  The losses from the passive activity now can only be realized if the activity eventually turns a profit, or when the investor sells his interest in the activity.  This legislative change drove a stake through the heart of the tax shelter industry.

Congress made several exceptions to the passive loss rule, though.  One of these was a working interest in an oil or gas property.  For these investments, the rules are much like they were before 1986.

Repealing the passive loss exception for working interests in oil and gas properties will result in a $20 million tax increase in 2011 and $180 million tax increase by 2020. 

This is a clear and blatant attempt to increase taxes on America’s energy manufacturing sector.  The policy rationale behind the passive loss exception in current law is debatable, but repealing it should only be done in the context of further tax reform.  If the federal government is going to be a full partner in your profitable years, and a deferred partner in your losing years, then you ought to at least get lower tax rates out of the deal.  Under no circumstances should this exception be repealed in the context of a net tax hike.

Check out the full table of energy tax increases and the industry impact numbers and a PDF document about passive loss.

More from Americans for Tax Reform

Top Comments


Energy Tax Hike Series: Marginal Well Tax Credit Repeal


Posted by Chris Prandoni on Tuesday, February 23rd, 2010, 2:21 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 marginal well tax credit which will result in billions of dollars of new taxes.

Marginal oil wells are those which produce 15 barrels of heavy oil or less per day or those that produce less than 95 percent water and 25 barrels per day or less. Marginal gas wells are those which produce 90 Mcf or less in one day.

The tax credit is $3/barrel for the first three barrels of daily production and $0.50 per Mcf tax credit for the first 18 Mcf of natural gas. The tax credit phases in and out in equal increments as prices fluctuate. Price triggers are based on average annual wellhead prices.

The FY 2011 Administration Budget, approved and submitted by President Obama, calls for a full repeal of the tax credit for oil and gas produced from marginal wells.

The benefits of this tax credit to smaller producers cannot be overstated. The Department of Energy estimates that the repeal of this tax credit will cost 140,000 barrels of oil per day or a loss of $10.5 million per day. Despite the smaller production from these wells, there are an estimated 650,000 marginal oil & gas wells in the United States employing millions of people. Raising taxes on energy production will cost jobs and increase the price of energy.

America’s marginal oil wells produce the amount equivalent to 50 percent of the amount imported from Saudi Arabia – increasing this tax credit will hurt domestic supply.

Repealing this tax credit without offsetting tax relief is a net tax increase and a Taxpayer Protection Pledge violation.  This tax credit is not a spending program, and eliminating it is not a reduction of government spending—it is a tax increase. 34 Senators and 172 Congressmen have signed the Taxpayer Protection Pledge.  In so doing, they promised to their constituents and the American people that they would “oppose any net reduction or elimination of deductions or credits…”

Check out the full table of energy tax increases and the industry impact numbers and a PDF document about the marginal well tax credit.

More from Americans for Tax Reform

Top Comments


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


Pages

hidden