Chris Prandoni

A Look Behind The Oil And Natural Gas Industry's Numbers


Posted by Chris Prandoni on Thursday, October 27th, 2011, 3:57 PM PERMALINK


Four times a year, Democrats and the Left cherry-pick oil and natural gas companies’ quarterly earnings and supplementary data in an attempt to justify tax increases on some of America’s largest employers. Yes, Exxon and other American oil and natural gas companies make a lot of money, but they also pay a lot of taxes and employ a lot of people—two facets of these companies that are rarely, if ever, discussed.    

You are “Big Oil”
Today Exxon announced 3rd quarter profits of $10 billion. So when oil natural gas companies make billions, who profits? If you have a retirement fund or are invested in the stock market, chances are you own a share of an American oil company—18 percent of oil and natural gas companies are owned by IRAs, 31 percent by pension funds, 20 percent by asset management companies (mutual fund, etc), 21 percent by individual investors, 6.6 percent by other institutional investors. Corporate management owns less than 3 percent of all oil natural gas companies. 

Oil and natural gas companies pay a lot of taxes
Exxon’s global effective income tax rate is a whopping 44 percent. This is due to the fact that many foreign governments charge a high royalty tax on oil production. Over the past five years, Exxon has paid $171 billion in global income taxes.

Domestically, Exxon’s effective income tax rate over the past five years is 32 percent. Over the same period, Exxon paid $21 billion in income taxes. But that’s not all, Exxon still pays the government royalty or lease payments, property taxes, excise and sales taxes on gasoline. When summed, the total tax expenses for Exxon and other oil and natural gas companies reaches the point of absurdity.

Paying nearly $100 million a day in income taxes, the oil and natural gas industry’s tax expenses average 48 percent, compared to 28 percent for other S&P Industrial companies. Using any tax metric, oil and natural gas companies are forking over lots of cash to the government.

And create a lot of jobs
Supporting more than 9 million well-paying jobs, America’s oil and natural gas industry is one of the few growing areas of our economy and responsible for 7.5 percent of GDP. But oil and natural gas companies want to create even more jobs. If the Obama Administration would begin to issue permits, sell leases, and lift bans on government land, the oil industry would invest hundreds of billions in domestic production. This flood of capital would create a million jobs over the coming years and net the federal government nearly $200 billion in taxes.

Unfortunately, Democrats and the Obama Administration have consistently attempted to raise taxes on this heavily taxed industry. Raising taxes on oil and natural gas producers would force companies to delay or scrap future projects as it becomes significantly harder for them to recover their investment costs.

You don’t know what you got ‘til it’s gone
The Obama Administration’s policies have caused expensive rigs to leave the Gulf of Mexico—taking tens of thousands of jobs with them. Future policies which hamstring natural gas production and close the Trans-Alaska Pipeline System would have the same effect. With a 9 percent unemployment rate, the Obama Administration should be facilitating growth and investment—not taxing it.   

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ATR Urges Representatives To Support H.R. 3094, The Workforce Democracy Act


Posted by Chris Prandoni on Thursday, October 27th, 2011, 10:48 AM PERMALINK


Unable to facilitate unfair unionization through Congressional action, the Obama Administration has utilized the NLRB to achieve similar ends. With union membership falling year after year, the NLRB issued a torrent of proposals to inflate unions’ numbers. Two of the most egregious proposals to come from the Board are the ambush elections rulemaking and the gerrymandering of a collective bargaining unit decision.

The proposed ambush election rulemaking would shorten the amount of time between when a union calls an election, and when that election is actually held. Employers are currently afforded, on average, 31 days to educate their employees about the pros and cons of unionization. Effectively silencing an employer, the NLRB rulemaking would allow the NLRB to hold an election only ten days after the union informs the employer of intent to unionize. More importantly, this will give workers an insufficient amount of time to consider joining a union. Furthermore, when a worker casts his ballot for or against unionization, they will not be entirely informed.

The second component of the Workforce Democracy and Fairness Act is to restore the traditional interpretation of a bargaining unit. In the Specialty Healthcare decision, the Board established a new standard for what constitutes a collective bargaining unit. This ruling will allow unions to organize small, discrete groups of workers. Under this new decision, workers who are grouped with pro-union workers during an election would essentially be disenfranchised.  Click here to view the full letter.

Together these rules undermine worker choice and silence job creators. Reaffirming worker protections from overeager unions, the Workforce Democracy and Fairness Act overturns these ill-advised NLRB proposals.     

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Newsflash: America Is Literally Covered In Pipelines


Posted by Chris Prandoni on Friday, October 21st, 2011, 1:36 PM PERMALINK


The pending Keystone XL Pipeline—the pipeline that will carry Canadian crude oil to refiners in Texas and Oklahoma—is emblematic of the misinformation campaigns waged by those who inexplicably want to scuttle this project, and the tens of thousands of jobs tied to its construction. Attempting to brand the pipeline as “dangerous,” groups and politicians on the Left have done Americans a disservice by misrepresenting the project’s basic facts.

The Pipeline is NOT a disaster waiting to happen

Since the first well was drilled in Pennsylvania over a hundred years ago, oil pipelines have been one of the safest, most efficient ways to transport oil. The United States produces 5.5 million barrels* and consumes about 19 million barrels every day. Much to the dismay of those on the Left, America and the world literally run on oil. With consumption showing no signs of abating, American businesses need to deliver oil and gasoline to eager consumers throughout the country. 

*If the Obama Administration would allow energy producers to develop America’s natural resources, the US could produce about 10 million barrels of oil daily.

The easiest way to transport the enormous amount of oil needed to power our economy is through an infrastructure of pipelines.

America is literally covered in oil pipelines, and for good reason.

If oil is not transported via pipeline, what are the alternatives? Trucks and boats, while utilized, cannot carry nearly as much oil or gasoline and are also susceptible to accidents. Until America has moved to a fully electric, plug in fleet (don’t hold your breath) pipelines will be here to stay. So unless you want to increase to cost of transporting gasoline, which will likely cause the price of gasoline to rise, let’s put our hands together for pipelines.  

 

 

 

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Issa-Ross Postal Reform Act: No Taxpayer Bailout


Posted by Chris Prandoni on Thursday, October 20th, 2011, 1:44 PM PERMALINK


With the United States Postal Service’s (USPS) $8 billion deficit this year forcing Congressional action, Representatives Issa (R-Calif.) and Ross (R-Fla.) have proposed the Postal Reform Act, H.R. 2309, which balances the books and ensures taxpayers do not foot the bill for USPS mismanagement.  Click here to view the PDF.  

Rightsizing the workforce
Compared to the private sector, over 80 percent of the Post Office’s costs are labor related, while FedEx and UPS spend 20-40 percent less. The Postal Reform Act looks to bring down labor costs by rightsizing the entity’s workforce and bringing postal employee compensation in line with other federal workers. Over the coming years, the Postal Reform Act will reduce USPS’s workforce by nudging government workers eligible to retire with full benefits to do so. Additionally, the Postal Reform Act would eliminate the no-layoff clause currently included in the postal employees’ collective bargaining contract. Postal Employees would be subject to the same Reduction-in-Force authority as the rest of the federal workforce.

Compensation
The Postal Reform Act requires postal employees to contribute the same percentage of their income as other federal employees to their retirement. Currently, postal workers only pay 21 percent of health care costs and none of their life insurance premiums, federal workers pay 28 percent of healthcare costs and are responsible for 100 percent of their life insurance costs.

Post Office Consolidations
The Postal Reform Act consolidates unnecessary facilities by allowing a BRAC style commission to close post offices and mail facilities that habitually run a deficit. 

Increases Flexibility
One of the greatest inhibitors to USPS reform is the rigid laws and regulations governing the entity. The Postal Reform Act allows USPS to eliminate Saturday delivery, if it chooses. Opening up a new source of revenue, HR 2309 would allow USPS to sell advertising space on vehicles and facilities. Given the USPS’s fleet, post offices, and sorting facilities, this provision has the potential to bring in substantial revenue.

Essential services
Just as important as what the bill accomplishes, HR 2309 is noteworthy for what it does not try to do—expand USPS’s services. In the past when the USPS has faced shortfalls, the entity has attempted to offer consumers more products—international shipping, ties, and other eventual boondoggles. These forays into other services have consistently ended poorly. Firstly, the USPS is not equipped to deliver these products at market price, so they inevitably lose USPS money. Secondly, any revenue the USPS gains comes at the detriment of a private company offering the same service. Leveraging the government’s support of USPS to encroach on private businesses is bad policy and should be explicitly prohibited.  

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Governor Perry's Energy Paper Hits All The Right Notes


Posted by Chris Prandoni on Monday, October 17th, 2011, 2:43 PM PERMALINK


Last week, presidential candidate Rick Perry released his aptly named Energizing American Jobs and Security plan, a blueprint outlining his energy and environmental policies. Leaving no rock unturned, Perry lays out a strong plan aimed at spurring domestic investment and job creation, reining in the out-of-control Environmental Protection Agency (EPA); and reducing our nation’s deficit.

Keeping in line with much of the legislation coming out of the Republican controlled House of Representatives, Perry first looks to undo the damage caused by the Obama Administration over the past three years. Refusing to issue drilling permits at a reasonable rate, the Department of the Interior has put forth an impossible number of hoops for oil and natural gas producers to jump through. Across town, Lisa Jackson’s EPA has scared America’s job creators into inaction. With a slew of punitive, unnecessary regulations coming down the pipe, America’s manufacturers and energy producers are hording capital until they fully comprehend EPA’s compliance costs. Perry’s blueprint would reprimand these agencies, expediting permit processing and giving American businesses the certainty investment requires.

Consistent with Perry’s record as governor, he believes that state-run EPAs are best equipped to determine and enforce environmental regulations. Bogged down in the fight against the federal EPA, devolution of environmental regulation to state agencies is something conservatives should talk about more.

Also encouraging is Perry’s plan to simplify our distortive tax code through repealing tax credits and subsidies. Cleaning up the code of course, would be done in a revenue neutral way as he promised Americans he would not raise their taxes when he signed the Taxpayer Protection Pledge. ATR has long championed this strategy for tax reform, which was modeled after Reagan’s successful 1986 plan. Repealing credits and plowing the savings into lower rates would not only simplify the tax code, but make it more fair—a step towards a truly innovative free energy market.

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AWF Urges An "Official Time" Policy Rider In Workers Appropriations Process


Posted by Chris Prandoni on Friday, October 14th, 2011, 2:44 PM PERMALINK


Today, the Alliance for Worker Freedom, an affiliate of Americans for Tax Reform, sent a letter to the hill explaining how implementing an "official time" policy would save the taxpayer money.  You may view the full letter here.

A study conducted by the Office of Personnel Management (OPM) for FY 2008 found that, among 61 federal departments and agencies, close to 3 million hours of official time was used in arbitration and collective bargaining. The report found that federal expenditures for these activities totaled $120,730,471, an increase of over $7 million from the previous year.  Click here to see the full letter. 

Let’s remember that our country now has one of the largest federal civilian workforces in its history, with over 80,000 employees making over $150,000 a year. On average, federal workers are making 30-40% more than their counterparts in the private sector.

As if big benefits, high pay, and "golden" pension plans weren’t enough, public sector union members’ goal is to increase the size and scope of government. This self-serving goal should be done on their own dime—not ours.

That government employees are permitted to waste so many work-hours at taxpayer expense is unseemly and unnecessary, especially given the economic burdens many Americans face today. Republicans cannot promise a smaller, more fiscally responsible government if we cannot commit to reforming the government we already have. 

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Three Myths About the NAT GAS Act


Posted by Chris Prandoni on Thursday, September 22nd, 2011, 2:47 PM PERMALINK


Today, the Ways and Means Committee held a hearing on energy tax policy and prospective tax reform. During the hearing—which lasted nearly 4.5 hours—the most interesting debate surrounded the NAT GAS Act, legislation that would provide tax credits to consumers who purchase natural gas cars and construct natural gas infrastructure.

Proponents of HR 1380, the NAT GAS Act, constructed and leaned on three straw men. The bolded sentence represents the NAT GAS Act advocates’ arguments—my rebuttal follows.  

  1. Increasing demand for natural gas via the NAT GAS Act will increase American natural gas production. Unfortunately, this theory only works in a vacuum. A vacuum that is absent government’s prohibitive exploration policies and uncertain regulatory environment. The hostile-to-hydraulic fracturing Environmental Protection Agency is looking to impose regulations which will surely hamstring the burgeoning industry. States like New York have banned hydraulic fracturing completely. In reality, the NAT GAS Act would likely induce demand that outpaces supply. This would raise prices for other, less politically connected, consumers of natural gas—like American manufacturers.
  2. The NAT GAS Act will make America more secure. America imports a majority of its oil from our North American neighbors, Canada and Mexico. The amount of oil we import from unfriendly governments, that perhaps may be sponsoring terrorist activity, is not insignificant but minimal. The NAT GAS is estimated to displace 100,000 oil-based cars over the next five years. This will reduce the amount of foreign oil we important but is not substantial enough to starve OPEC or Venezuela of revenue. After all, Venezuela and the countries that constitute OPEC export arguably the most valuable resources in the world—they don’t have trouble finding buyers.
  3. Without the NAT GAS Act, consumers won’t buy natural gas cars. While a tax credit would certainly increase purchases of natural gas cars, it is important to ask what the impetus is behind such a policy, and is it fair. Americans for Tax Reform operates under the assumption that the government should abstain from meddling in the market unless there is an obvious market failure. With their vast natural gas vehicle fleets, UPS and Fed Ex disprove the supposition that natural gas cars are simply too expensive. Further, why should natural gas consumers who drive cars receive preferential treatment over a family that uses the fuel to heat their home?
     

Don’t like the NAT GAS Act? Tell your Representative or Senator.

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ATR Urges Passing Of TRAIN Act


Posted by Chris Prandoni on Tuesday, September 20th, 2011, 2:41 PM PERMALINK


The TRAIN Act will establish an interagency committee to assess the combined impacts of recent environmental regulations. Although the EPA employs its own economists to access the fiscal impact of its rules, internal employees underestimate regulatory costs.

Immediatley, the TRAIN Act would delay the onerous Utility MACT rule and new transport rule until the economic impacts of these two rules are fully understood. When combined, the Utility MACT and the new transport rule until could cost approximatley $17.8 billion annually, totaling $184 billion by 2030. Additionally, these rules could result in 1.44 million jobs lost.

With an economy on the edge of another resseccion, it's vital that TRAIN be passed in order to jump start the long-delayed phase of real job creation.  Click here to read the full letter.

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Obama Proposes $100 Billion in Tax Hikes on Energy Producers and Families


Posted by Chris Prandoni on Monday, September 19th, 2011, 4:38 PM PERMALINK


Click here for a PDF file of this document

More taxes, less jobs
Oil and natural gas companies are responsible for about 9.2 million jobs in this country and about 7.5 percent of its GDP. Raising taxes on this industry would force companies to delay or scrap future projects as it becomes significantly harder for them to recover their investment costs. Repealing the below deductions and credits could kill 170,000 jobs and ultimately reduce government revenue, according to a Wood-Mackenzie study.

Encumbered by taxes
Already paying a little over $85 million a day, the oil and natural gas industry’s earnings are taxed at an effective rate of 41 percent. Compare this to the average income tax rate of 26 percent for non-oil and natural gas companies in the S&P 500 and it is clear that oil companies are paying their “fair share.”

Repealing the following twelve tax policies employed by energy producer would raise these businesses taxes by $95 billion. Eliminating the first eight tax policies increases oil and natural gas companies’ taxes by $41 billion. 

1. Intangible Drilling Costs.  Current law allows energy companies to deduct most (only 70% of these costs for the larger companies) of the costs associated with drilling.  All expenses should be deductible in the year they are incurred.  Stimulus 2.0 would repeal this and make companies deduct the costs very slowly over fifteen years.

2. Tertiary Injectants.  Current law allows energy companies to deduct the cost of injecting materials into older energy reservoirs in order to keep them productive.  This is the proper tax treatment of this cost.  Stimulus 2.0 would replace this very ordinary deduction with precisely nothing.  Energy companies would simply have to eat the cost with after-tax dollars.

3. Percentage Depletion.  This refers to a provision of law that allows taxpayers to recover their lease investment in a mineral interest through a percentage of gross income from a well.  Stimulus 2.0 would repeal this provision ONLY for investments in oil and gas wells.  Interestingly, the largest oil companies don’t benefit from this today, so this tax increase is targeted only at smaller energy companies and their investors.

4. Manufacturer Tax Deduction (aka “Section 199”). All employers are today allowed to deduct up to 9% of the cost of domestic manufacturing—all employers, that is, except energy companies, who can only deduct 6% of such costs.  Stimulus 2.0 would deny this deduction entirely to energy companies, singling them out by picking winners and losers in the tax code.

5. Oil and Gas Passive Losses.  In general, “passive” (trade or business activities without active participation) losses are not allowed to be claimed by taxpayers.  There is an exception for investment in oil and gas extraction.  Stimulus 2.0 repeals this exception, which will tend to hit small energy companies and their investors the hardest.

6. Geological and Geophysical Costs.  Currently, small energy companies can deduct the costs of exploring for new sources of energy over two years (again, the proper treatment should be to expense in the first year).  Stimulus 2.0 would stretch this period to seven years.  This only affects small, independent energy employers as larger companies are ineligible for the two-year treatment under current law.

7. Enhanced Oil Recovery Credit.  This credit, intended to spur oil production even when prices are low, can only be claimed when oil is less than $42 per barrel.  Oil is currently about $87 per barrel, so this credit is nowhere near claim-able.  Nonetheless, Stimulus 2.0 repeals the credit just to raise taxes while scoring cheap points against energy employers.

8. Marginal Well Production Credit.  This credit is the same as the Enhanced Oil Recovery Credit in Sec. 437, but it is only use-able when oil prices drop to $27 per barrel.  Stimulus 2.0 repeals this credit for similar reasons.

9. Dual Capacity Rules (tax increase of $10 billion).  The U.S. is one of the only nations which attempts to tax on a “worldwide” basis—even on income which has already faced income taxation in other countries.  When combined with the highest corporate tax rate in the developed world, “worldwide” taxation is an uncompetitive jobs killer.  In order to avoid international double taxation, employers can claim a tax credit for income taxes paid overseas.  Stimulus 2.0 makes it more difficult for energy companies to claim this tax credit, exposing their worldwide income to international double taxation—potentially shipping jobs overseas to avoid paying taxes twice.

10. Repeal last-in, first-out (LIFO) method of accounting for inventories (tax increase of $52 billion, $22.5 billion on oil and natural gas industry). A long-accepted accounting method, LIFO is employed both by small businesses and energy producers. Retroactively taxing businesses accrued LIFO reserves would drain these entities of capital.

11. Reinstate Superfund taxes (tax increase of $19 billion). Reintroducing a $.10 excise tax on barrels of oil, the superfund tax would generate revenue for the Superfund Trust Fund (STF). The STF would initially be used to clean up hazardous substances released into the environment but likely be raided for other uses—just like Highway Trust Fund is used to pay for bike paths, subsidize subways, and finance other non-highway projects. Proving the STF unnecessary, energy producers have responsibly removed waste since the elimination of the Superfund in 1996.  

12. Repeal the coal industry’s tax policies (tax increase of $2 billion). Just as Obama proposed to raise the oil and natural gas industry’s taxes, the president has also looked to repeal similar tax policies employed by the coal industry. Specifically, Obama has proposed to eliminate the expensing of exploration and development costs (described as number one of ATR’s analysis), percent depletion (number three), capital gains treatment for royalties, and Section 199 (number 4).

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How Not To Create Jobs: Further Tax An Industry That Employs Nine Million Americans


Posted by Chris Prandoni on Thursday, September 15th, 2011, 11:25 AM PERMALINK


Stimulus 2.0= Lost oil and natural gas jobs
Oil and natural gas companies are responsible for about 9.2 million jobs in this country and about 7.5 percent of its GDP. Raising taxes on this industry would force companies to delay or scrap future projects as it becomes significantly harder for them to recover their investment costs. Repealing the below deductions and credits could kill 170,000 jobs and ultimately reduce government revenue, according to a Wood-Mackenzie study.

Encumbered by taxes
Already paying a little over $85 million a day, the oil and natural gas industry’s earnings are taxed at an effective rate of 41 percent. Compare this to the average income tax rate of 26 percent for non-oil and natural gas companies in the S&P 500 and it is clear that oil companies are paying their "fair share."

How to create jobs
House Republicans have passed eight bills that would create jobs and induce domestic growth by increasing onshore and offshore energy production, and preventing the EPA from implementing onerous regulations. Allowing oil and natural gas companies to develop America’s vast resources would create around 530,000 jobs, bringing the treasury increased revenue and reducing our dependence on foreign oil. Eliminating imminent EPA rules would provide utility, manufacturing, and coal companies/refiners the certainty they need to invest and grow.

Unfortunately, the Democrat-controlled Senate rejected every single House GOP proposal to jumpstart our fledging economy. Disappointingly, President Obama seems to be doubling-down on his Party’s tax and regulate approach. Click here to view to full PDF.

List of 9 proposed tax hikes on oil and natural gas producers in Stimulus 2.0:

1. Intangible Drilling Costs (Sec. 431). Current law allows energy companies to deduct most (only 70% of these costs for the larger companies) of the costs associated with drilling. All expenses should be deductible in the year they are incurred. Stimulus 2.0 would repeal this and make companies deduct the costs very slowly over fifteen years.

2. Tertiary Injectants (Sec. 432). Current law allows energy companies to deduct the cost of injecting materials into older energy reservoirs in order to keep them productive. This is the proper tax treatment of this cost. Stimulus 2.0 would replace this very ordinary deduction with precisely nothing. Energy companies would simply have to eat the cost with after-tax dollars.

3. Percentage Depletion (Sec. 433). This refers to a provision of law that allows taxpayers to recover their lease investment in a mineral interest through a percentage of gross income from a well. Stimulus 2.0 would repeal this provision ONLY for investments in oil and gas wells. Interestingly, the largest oil companies don’t benefit from this today, so this tax increase is targeted only at smaller energy companies and their investors.

4. Manufacturer Tax Deduction (aka "Section 199") (Sec. 434). All employers are today allowed to deduct up to 9% of the cost of domestic manufacturing—all employers, that is, except energy companies, who can only deduct 6% of such costs. Stimulus 2.0 would deny this deduction entirely to energy companies, singling them out by picking winners and losers in the tax code.

5. Oil and Gas Passive Losses (Sec. 435). In general, "passive" (trade or business activities without active participation) losses are not allowed to be claimed by taxpayers. There is an exception for investment in oil and gas extraction. Stimulus 2.0 repeals this exception, which will tend to hit small energy companies and their investors the hardest.

5. Geological and Geophysical Costs (Sec. 436). Currently, small energy companies can deduct the costs of exploring for new sources of energy over two years (again, the proper treatment should be to expense in the first year). Stimulus 2.0 would stretch this period to seven years. This only affects small, independent energy employers as larger companies are ineligible for the two-year treatment under current law.

6. Enhanced Oil Recovery Credit (Sec. 437). This credit, intended to spur oil production even when prices are low, can only be claimed when oil is less than $42 per barrel. Oil is currently about $87 per barrel, so this credit is nowhere near claim-able. Nonetheless, Stimulus 2.0 repeals the credit just to raise taxes while scoring cheap points against energy employers.

7. Marginal Well Production Credit (Sec. 438). This credit is the same as the Enhanced Oil Recovery Credit in Sec. 437, but it is only use-able when oil prices drop to $27 per barrel. Stimulus 2.0 repeals this credit for similar reasons.

8. Dual Capacity Rules (Sec. 441). The U.S. is one of the only nations which attempts to tax on a "worldwide" basis—even on income which has already faced income taxation in other countries. When combined with the highest corporate tax rate in the developed world, "worldwide" taxation is an uncompetitive jobs killer. In order to avoid international double taxation, employers can claim a tax credit for income taxes paid overseas. Stimulus 2.0 makes it more difficult for energy companies to claim this tax credit, exposing their worldwide income to international double taxation—potentially shipping jobs overseas to avoid paying taxes twice.

9. Dual Capacity Discrimination Against Oil and Gas Employers (Sec. 442). In addition to the dual capacity rule repeal of Sec. 441, this provision of Stimulus 2.0 makes it even more difficult for oil and gas employers to avoid double taxation than it does for all other taxpayers to avoid double taxation. It adds insult to the injury of dual capacity rule repeal. 

 

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