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Friday, March 11, 2011

Oil and Natural Gas Industry Tax Issues in the FY2012 Budget Proposal

Robert Pirog
Specialist in Energy Economics

The Obama Administration, in the FY2012 budget proposal, seeks to eliminate certain tax expenditures that benefit the oil and natural gas industries. Supporters of these tax provisions see them as comparable to those affecting other industries and supporting the production of domestic oil and natural gas resources. Opponents of the provisions see these tax provisions as subsidies for a profitable industry the government can ill afford, and impediments to the development of clean energy alternatives.

The FY2012 budget proposal outlines a set of proposals, framed in terms of deficit reduction, or termination of tax preferences, that would potentially increase the taxes on the oil and natural gas industries, especially those of the independent producers. These proposals include repeal of the enhanced oil recovery and marginal well tax credits, repeal of the current expensing of intangible drilling costs, repeal of the deduction for tertiary injectants, repeal of the passive loss exception for working interests in oil and natural gas properties, elimination of the manufacturing tax deduction for oil and natural gas companies, increasing the amortization period for certain exploration expenses, and repeal of the percentage depletion allowance for independent oil and natural gas producers. In addition, a variety of increased inspection fees and other charges that generate more revenue for the Department of the Interior are included in the budget proposal.

The Administration estimates that the tax changes outlined in the budget proposal would provide $22.8 billion in revenues over the period 2012 to 2016, and over $43.6 billion from 2012 to 2021. These changes, if enacted by Congress, also would reduce the tax advantage enjoyed by independent oil and natural gas companies over the major oil companies. On what would likely be a small scale, the proposals also would make oil and natural gas more expensive for U.S. consumers and likely increase foreign dependence.

Date of Report: March 3, 2011
Number of Pages: 12
Order Number: R41669
Price: $29.95

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