The Collins-McCaskill jobs bill contains some good initiatives (boiler MACT delay, consolidation of federal workforce) but undermines its intended purpose by raising taxes on some of America’s largest employers—American oil and natural gas producers.
Impact on Maine
Maine has no natural gas or oil reserves within its borders, making Maine’s citizens completely dependent on the lower 48 for their heating and driving needs. An absence of fossil fuels is especially concerning for Mainers since 80% of the state’s households are heated with fuel oil.
More taxes, less jobs
Oil and natural gas producers 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. Most importantly, none of the tax policies employed by oil and natural gas companies are particularly unique—most are used by many businesses in many industries. Singling out one industry for tax increases is bad tax policy and inequitable.
Repealing the below deductions and credit could kill 170,000 American jobs and ultimately reduce government revenue, according to a Wood-Mackenzie study.
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. The Collins-McCaskill bill would repeal this and make companies deduct the costs very slowly over fifteen years.
2. 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. The Collins-McCaskill bill 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.
3. 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. The Collins-McCaskill bill would deny this deduction entirely to energy companies, singling them out by picking winners and losers in the tax code.
4. 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. The Collins-McCaskill bill would replace this very ordinary deduction with precisely nothing. Energy companies would simply have to eat the cost with after-tax dollars.
5. Dual Capacity Rules. 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. The Collins-McCaskill bill 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.