Congressional Republicans have already called the proposed budget a political non-starter
President Obama released his proposed federal budget, asking Congress to eliminate billions of dollars in tax breaks to the oil and gas industry in order to fund a $4 trillion budget for fiscal year 2016. The budget comes as part of a broader push to overhaul U.S. business taxes, which includes lowering the corporate tax rate to 28% from 35% today, while hitting untaxed foreign earnings that U.S. companies have accumulated overseas with a one-time, 14% tax, according to Argus Media.
Obama’s budget for the fiscal year beginning October 1, 2015, will eliminate a series of “oil and natural gas preferences” that the White House Office of Management and Budget (OMB) estimates would “raise” $4.1 billion in 2016 and $45.5 billion from 2016 to 2025, all of which would go to the government.
The plan would repeal expensing of drilling costs like wages, fuel repairs, hauling and supplies needed to drill a well. The OMB estimates that those alone will raise $2.3 billion in 2016 and $15.5 billion over the next ten years. The plan would also do away with the percentage depletion allowance for oil and gas wells and producers’ ability to take the Section 199 deduction for domestic manufacturers.
The repeal of Section 199 alone could compromise more than 10% of U.S. oil and gas productive capacity by 2017 – or roughly $10 to $17 billion in direct upstream investment per year, reports Oilprice.com.
Along with repealing a number of tax breaks, the plan proposes reinstating a Superfund tax, which once included a $0.07/barrel excise tax on crude and refined products, and increasing the funding for the Oil Spill Liability Trust Fund.
The American Petroleum Institute estimates that the new tax plan in Obama’s proposed budget would cost the oil and gas sector about $95 billion over the course of a decade.
Republican leaders have already dismissed the proposed budget, but it will still lay the ground work for negotiations with lawmakers over simplifying the tax code moving forward.
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