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241 IRET Congressional Advisory 1 (2008)

handle is hein.taxfoundation/iretcgadv0238 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies thait will promote growth and efficient operation of the market economy. June 10, 2008 Advisory No. 241 ENERGY PRICE BILL - S. 3044 - UP FOR CONSIDERATION The Senate is again considering energy legislation that failed to pass last year. The bill (S. 3044 - the Energy Price Bill) would raise $17 billion in revenue by denying the use of existing tax provisions to the largest energy companies (those that produce over 500,000 barrels of crude oil a day), and would impose a 25% windfall profits tax on major integrated oil companies and use the tax proceeds to fund research into alternative fuels. The tax revenue would be directed to a trust fund to support research into alternative fuels. The bill contains an anti-price gauging provision. The tax provisions would reduce energy production by U.S. based companies and raise fuel prices. They would make the United States even more dependent on foreign oil. They would make it harder for U.S. companies to obtain foreign leases or to participate in consortia to develop and market foreign-source energy, leaving more of those activities for foreign private and state-owned companies. That would reduce the influence of U.S. firms and the U.S. government over global energy production and marketing, which would impede U.S. energy security, if in fact that concept has any meaning to begin with. The anti-price gouging provision is so vague as to be unenforceable, and would do more harm than good if any attempt were made to make it work. Windfall profits tax. Been there, done that, regretted it mightily. The windfall profits tax would discourage production by U.S. companies, especially here at home, and would raise prices of gasoline and other fuels. The tax would make us even more dependent of foreign oil, just as it did in the 1970s and early 1980s. The energy industry has highly cyclical profits. Over time, these profits are very much in line with those of most other industries. Capping the industry's profits at the peaks would reduce average profitability and reduce investment in the sector, driving capital into other industries or offshore. The U.S. based companies would find it harder to compete with foreign rivals for supplies and reserves elsewhere in the world. Denying standard tax treatment to large oil companies - $17 billion over ten years. Denial of the manufacturing deduction (Section 199) to certain producers of domestic energy. The bill would disallow the manufacturing deduction for all domestic producers of oil, gas, and derived primary products for the major U.S. based integrated oil companies (but not for their foreign-owned competitors in the U.S. market). Section 199 allows a 9% deduction from income from manufacturing and certain food and natural resource processing activities. It effectively cuts the corporate tax rate from 35% to 31.85%, with a similar reduction in non-corporate tax rates. It replaced the DISC, FISC, and ETI credits to promote U.S. exports that were ruled illegal by the WTO. It would make more sense to reduce corporate and small business tax rates across the board, for manufacturing, mining, fanning, and services. Nonetheless, if a fairly general reduction for manufacturing and processing industries is on the books, there is no legitimate reason to deny it to the energy sector. It would reduce energy output. e~em km A * * gg~ g ~gg

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