AXPC statement on President Biden’s Budget:
Changes to Current IDC Tax Policy Would be Detrimental to America
WASHINGTON – Responding to the Biden Administration’s proposed budget that includes tax policies that penalize the oil and gas industry, American Exploration and Production Council CEO Anne Bradbury underscored the important role of domestic energy production and urged Congress to write a budget that protects investments in the industry, American workers, and US national security:
“Using tax policy to target and penalize a segment of our economy that supports millions of good-paying American jobs and thousands of communities is not only bad policy, but a dangerous precedent.
“Removing tax policies for oil and gas companies, many of which are utilized by business sectors across the economy, is short-sighted and counterproductive, and would not provide any savings to the American taxpayer. The Biden budget, if enacted, would stifle investment and cause a precipitous decline in US production of affordable, clean, and reliable energy.
“It is imperative that members of Congress – especially those whose districts include thousands of industry workers with good-paying jobs and whose communities benefit from the industry – vote for a budget that avoids pitting one segment of industry against others, and instead recognizes our industry’s essential role in fueling America’s economy and global leadership.”
BACKGROUND:
Biden’s budget includes numerous changes to tax provisions, including one that by itself would cut over $10.5 billion from America’s oil and gas industry, unfairly prohibiting it from expensing business costs, an accounting practice utilized by sectors across the economy.
Changes to Current IDC Tax Policy Would be Detrimental to America:
When an operator drills a well, approximately 15 percent of the costs are tangible (pipe, controls, etc.) and 85 percent of the costs are intangible.
Intangible drilling costs (IDCs) allow oil and natural gas companies to recover their intangible costs more quickly, freeing funds up to reinvest in development, resulting in more jobs. Unlike tax credits, IDCs do not reduce the total taxes paid over the lifetime. IDCs allow operators to immediately deduct expenses, which is similar to other tax mechanisms to encourage investment, such as the deduction for R&D expenses allowed for other industries. Additionally, most manufacturing assets are eligible for bonus depreciation, which also allows for an immediate tax deduction. Drilling expenditures, mainly the jobs provided by exploration and development activities, account for billions of US investment dollars each year, which allows ongoing environmentally protective and safe production of domestic oil and natural gas here in the United States.
IDCs allow oil and natural gas companies to recover their costs consistent with the economic reality of their underlying expenses, freeing up funds to reinvest in new projects that support millions of good-paying jobs. And IDCs allow the industry to invest in states where the industry serves as a major economic driver – such as Texas, New Mexico, Pennsylvania, and West Virginia.
About the American Exploration and Production Council:
AXPC is a national trade association representing the largest independent oil and natural gas exploration and production companies in the United States. We lead the world in the cleanest and safest onshore production of oil and gas, while supporting millions of Americans in high-paying jobs and investing a wealth of resources in our communities. Learn more at https://axpc.org/