API, IPAA See Flaws in Tax Reform Draft

Oil and gas industry group officials voiced concerns Wednesday over the discussion draft of tax reform proposals introduced by Ways and Means Committee Chairman Dave Camp (R-MI).

House Ways and Means Committee Chairman Dave Camp released a comprehensive discussion draft to overhaul the U.S. Internal Revenue Code Wednesday, which would impact nearly all U.S. taxpayers and the way business income is taxed in the United States.

The proposed overhaul of the United States’ tax code could harm job creation and the United States’ energy and manufacturing sectors, American Petroleum Institute (API) President and CEO Jack Gerard said in a statement.

API sees “series flaws” in the discussion draft regarding cost recovery and LIFO accounting that could hurt jobs, American energy production and U.S. energy security.

“America’s oil and natural gas industry already generates $85 million per day for the federal government,” Gerard said. “Higher taxes on energy and manufacturing would hit American families and workers by undermining private investment, job creation, energy production and government revenue.”

Both Gerard and Barry Russell, president and CEO of the Independent Producers Association of America (IPAA), praised Camp’s effort into developing a federal tax reform proposal. Russell also commended Camp on the retention of the current tax treatment for intangible drilling costs.

“This longstanding tax deduction provides producers with the ability to reinvest 150 percent of their cash flow into new U.S. production,” Russell said. “Retaining this provision will enhance the American production that is now being recognized as driving much broader investment in U.S. manufacturing.”

However, IPAA is troubled by the change in the percentage depletion deduction and specifically, its impact on America’s small business producers and royalty owners of oil and natural gas resources. These stakeholders have relied on the percentage depletion deduction to maintain America’s marginal wells, which generate 20 percent of American oil and more than 12 percent of America natural gas.

“IPAA is concerned that the overall result, notwithstanding the change in the individual tax rate, could imperil America’s essential marginal well production,” Russell said.

IPAA also is concerned about the impact of the proposal’s change of the passive loss exception. This exception was instituted to ensure that small producers who rely on private investors for financing could compete with larger companies and their access to capital from banks and other larger financial institutions.

Russell said IPAA would assess the draft proposal’s impact on small businesses that rely on these investors to develop their projects.

Camp said the latest draft, “Tax Reform Act of 2014”, would spur stronger economic growth, greater job creation and put more money in the pockets of hardworking taxpayers.

The Tax Reform Act of 2014 would create up to 1.8 million new private sector jobs, allow approximately 95 percent of filers to get the lowest possible tax rate by claiming the standard deduction – which would eliminate the need to itemize and track receipts – and increase the U.S. gross domestic product by up to $3.4 trillion, the equivalent of 20 percent of today’s economy.

During his three-year tenure as chairman, Camp has overseen bipartisan efforts to overhaul the U.S. tax code. This effort has resulted in 30 separate Congressional hearings, 11 separate bipartisan tax reform working groups formed in conjunction with Ranking Member Sander Levin (D-MI), and three discussion drafts examining discrete areas of the tax code.

“This legislation does not reflect ideas solely advanced by Democrats or ideas solely advanced by Republicans, nor is it limited to the halls of Congress,” said Camp in a Feb. 26 press statement. “Instead, this is a comprehensive plan that reflects input and ideas championed by Congress, the Administration, and most importantly, the American people.”



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