Energy Tax Hike Series: IRS Sec. 199 Repeal

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 IRS Section 199, the Domestic Production Activities Deduction. This change will result in billions of dollars of new taxes.

The Internal Revenue Code (IRC) Section 199, the Domestic Production Activities Deduction, benefits all companies who produce goods on American soil – yet only energy companies are targeted for the cuts in deduction rates.

Prior to harmful energy legislation passed last Congress, businesses engaged in a qualifying production activity were eligible to take a tax deduction of 3% of the profits from this qualifying activity in tax years 2005 and 2006. The deduction increases to 6% of profit in 2007, 2008, 2009, totaling 9% in years 2010 and beyond.

However, the Pelosi-Reid energy agenda has implemented a Sec. 199 “freeze” at 6% - only for energy companies, thus further carving out their niche for non-traditional energy.

• Impact on oil and natural gas: Repealing Sec. 199 will result in a $851 million corporate income tax increase in 2011 and a  $17.314 billion tax increase by 2020
• Impact on hard mineral fossil fuels (coal): Repealing Sec. 199 will result in a $3 million corporate income tax increase in 2011 and a $57 million tax increase by 2020
• Total impact: Repealing Sec. 199 will result in a $854 million tax increase by 2011 and a $17.371 billion tax increase by 2020

Culling America’s most productive energy sources for the purposes of taxation can only lead to higher energy prices for Americans. Energy companies will not pay the tax increase a repeal of Sec. 199 prompts, consumers will. This tax will be passed on to every domestic manufacturer, business, and American. Furthermore, a repeal of Sec. 199 undermines the 6 million workers that makeup the oil and natural gas industry in the U.S. as it effects only domestic oil production.

Check out the full table of energy tax increases and the industry impact numbers and a  PDF document further explaining Section 199.

Permalink | Email | Print | Tags: TAXES, ENERGY, BUDGET, Federal

Add a Comment