Any jobs in Obama's American Jobs Act?
We can assume that administration officials are either appallingly ignorant of how the oil industry works or they are deliberately trying to increase the cost of gasoline to reduce demand. But the latter flies in the face of President Barack Obama's decision this summer to release 30 million barrels from the Strategic Petroleum Reserve to lower the price of gasoline.
One purpose of the Act is to punish "Big Oil" over allegedly unfair tax breaks. There are several tax policy modifications that affect only oil companies. One is the partial repeal of the American Jobs Creation Act of 2004, which allowed a 9 percent tax deduction for companies that produce goods inside American borders. Oil companies were given only a 6 percent deduction, which under the Obama plan will drop to zero. In other words, there is a silent enticement for oil companies to invest in refineries, LNG plants and storage facilities abroad, say in Mexico or Canada.
Also repealed is the Percentage Depletion Allowance – again, only for oil and gas production. For coal and other minerals the 15 percent deduction from taxable income will continue. This will hurt only the little independents because big oil companies lost this deduction 36 years ago.
The third tax repeal will disallow oil drilling companies their Intangible Drilling Cost deductions (IDC's). At least 75 percent of drilling costs are for consumables such as fuel, mud, cement, etc. But the new law will consider these expenses the same as machines that must be depreciated over many years thereby increasing current-year taxes. This will have a serious impact on small companies that drill 95 percent of all new wells in America. They are usually not rich and often rely on IDC's to pay for the next well.
A fourth repeal will eliminate the tax deduction for chemicals injected into depleted oil reservoirs for enhanced oil recovery that restores oil production from old fields. This will be seen as another silent signal to import more foreign oil.
A fifth repeal is the $3-per-barrel tax credit for wells that produce less than 15 barrels per day. That sounds like a bargain compared with a subsidy of up to $23 per barrel for ethanol. There are more than 360,000 of these "stripper wells" in the United States, many producing less than two barrels per day. Altogether they produce more than 325 million barrels per year, which would cost nearly $30 billion if we import it. Many are owned by little "mom and pop" companies.
Lastly, the president wants to eliminate credit for taxes paid by oil companies to foreign countries. This would be an unprecedented case of double taxation on American oil companies and their shareholders. That's in the same league as Hugo Chavez.
Eventually citizens will realize the folly of these new taxes as pump prices rise. They will, of course, blame oil companies and demand relief from the government. One thing is certain: major oil industry executives will always find ways to pass on to their customers every new cost or impediment to their businesses, even if it means going overseas.
Is it fair to ponder whether one of Obama's advisers is a lobbyist from OPEC?"
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