ATR today released a coalition letter signed by 19 organizations and activists in opposition to a proposal by President Biden and Congressional Democrats to raise taxes on American energy producers through eliminating the deduction for intangible drilling costs (IDCs).
IDCs allows independent energy producers to immediately deduct business expenses related to drilling such as labor, site preparation, repairs, and survey work.
This provision in not a subsidy, loophole, or giveaway. Instead, it is an important tax provision that promotes investment, job creation, and growth.
The deduction for IDCs is consistent with immediate expensing offered to all business investments, a policy change instituted in the Tax Cuts and Jobs Act of 2017. Currently, taxpayers can immediately deduct the cost of most assets in the year they are purchased. In this way, eliminating the deduction of IDCs would be highly discriminatory.
Repealing this provision and raising taxes on oil and gas taxpayers is a reckless policy proposal that will threaten manufacturing jobs across the country, threaten American energy independence, and raise the cost of energy for American families.
Click here to view the letter or read below.
Dear Majority Leader Schumer, Republican Leader McConnell, Speaker Pelosi, Republican Leader McCarthy:
The undersigned organizations, representing millions of taxpayers, strongly oppose efforts to raise taxes on American energy. Specifically, we are opposed to discriminatory tax increases that would repeal legitimate cost recovery mechanisms like the ability to immediately expense intangible drilling costs (IDCs). This tax hike would eliminate jobs, raise the cost of energy for American families and businesses, and increase global reliance on hostile nations like Iran and Russia for energy.
For decades, far-left Democrats and activist groups have undertaken a coordinated attack on reliable sources of energy produced in the United States, including oil and natural gas, through schemes like cap-and-trade, bans on hydraulic fracturing, and tax hikes all aimed at “keeping it in the ground.” Most recently, President Biden proposed numerous tax hikes on energy including a tax increase on IDCs in his fiscal year 2022 budget proposal. Senator Bernie Sanders and Representative Ilhan Omar recently introduced legislation that also includes this energy tax hike.
The current tax treatment of IDCs allows American oil and gas companies to immediately expense the intangible expenses associated with drilling a well, like labor. Immediate expensing is not a “subsidy” nor a “loophole.” It is a legitimate cost recovery mechanism that should be made permanent throughout the tax code to encourage investment and job creation across the economy.
The negative consequences of a discriminatory tax increase on IDCs would be felt throughout the economy. One study from 2013 found that President Obama’s attempt to raise taxes on IDCs would have eliminated over 230,000 jobs, reduced oil output by 3.8 million barrels/day, and cut U.S. capital investment by over $400 billion. These impacts would be felt across the country, but especially in states like Colorado, New Mexico, Pennsylvania, Texas, and West Virginia.
Thankfully, for these reasons, efforts to raise taxes on IDCs have been rejected by members of both parties for years.
The American shale industry significantly contributed to our country’s ability to emerge from the last economic recession of the early Obama years – we should not impose discriminatory taxes on this industry now, as it is needed to help us recover from the current economic downturn.
As Congressman Jodey Arrington recently noted in a letter signed by 55 members of Congress, “Using an ‘infrastructure’ package to weaken our energy infrastructure is a grave mistake that will hurt families, farmers, and small businesses still recovering from the pandemic.”
We agree, and we strongly urge Congress to oppose energy tax increases, especially the discriminatory efforts to repeal the legitimate treatment of intangible drilling costs (IDCs) that support good-paying American jobs across the country.
President, Americans for Tax Reform
President, Taxpayers Protection Alliance
Vice President, Heritage Action for America
President, Center for a Free Economy
James L. Martin
Founder/Chairman, 60 Plus Association
Saulius “Saul” Anuzis
President, 60 Plus Association
President, Independent Women’s Forum
Andrew F. Quinlan
President, Center for Freedom and Prosperity
Heather R. Higgins
CEO, Independent Women’s Voice
President, Rio Grande Foundation
Executive Director, Power the Future
Executive Vice President, National Taxpayers Union
Director, Center for Energy and Environment, Competitive Enterprise Institute
President, Center for Individual Freedom
President, Council for Citizens Against Government Waste
President, The Heartland Institute
President, Independence Institute
Mario H. Lopez
President, Hispanic Leadership Fund