Proposed Tax Reform Could Benefit Industry

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Earlier this week, the first details of Pres. Trump's tax plan were unveiled. The Independent Petroleum Association of America issued an analysis of the package that explains some positive impacts on the oil and gas industry. Below is an excerpt from the release:
You can find the White House/Republican plan outline here. For oil and natural gas producers there are several positive elements -- lower corporate and individual tax rates, repeal of the individual Alternative Minimum Tax, elimination of the estate tax and full expensing of capital investments. However, the expensing provision is not permanent; it expires after five years. For U.S. independent producers, capital recovery provisions are more significant than tax rates. IPAA members and staff continue to emphasize these points with The White House and with lawmakers.
White House and Congressional Meetings. The next opportunity for IPAA to give voice to these critical provisions will take place on Monday. IPAA has been invited to a meeting at The White House to be briefed on tax and regulatory provisions. This is a follow-up to a meeting held in June between IPAA and National Economic Council director Gary Cohn. Also on Monday, Treasury Secretary Steven Mnuchin and Energy Department Secretary Rick Perry will meet with IPAA. In addition, the IPAA Government Relations team has held over 60 meetings with tax policymakers on Capitol Hill and will continue meeting with congressional leaders in the weeks ahead. We will also build upon our Energy Tax Facts educational and public outreach campaign, emphasizing the importance of capital recovery for expanded American oil and natural gas production.
Specific details related to our industry are not addressed in today's broad outline. Legislative language will now be drafted by the House Ways and Means Committee and Senate Finance Committee, and ultimately will need to pass Congress. However, the Section 199 manufacturers tax deduction that includes oil and natural gas would be repealed because of the lower corporate tax rate proposed in today's framework. The broad outline implies that other business deductions and tax credits will also likely be repealed or revised. Until these details are further developed, it is too soon to assess whether the overall proposal threatens other oil and natural gas production provisions.
Looking forward, time and process appear to be the largest challenges. The negotiators have signaled their wish to complete legislative action this year, but several procedural and political hurdles must first be addressed. One issue will be whether the tax legislation will be revenue neutral or not. For example, even though depreciation allows for recovery of capital expenditures, shortening schedules moves recovery that would occur beyond the ten-year window into the budget impact calculations as revenue losses. Added to impacts of lower rates, the revenue loss would be substantial for the budget process. Another issue will be whether congressional leaders will use the budget reconciliation process to move tax reform legislation or use regular order. Regular order allows for extensive floor debate, particularly in the Senate, but also allows the opportunity for filibustering. And that could require full Republican support or risk failure as we've seen with the Obamacare debates.
These steps are not ones that can be executed quickly and a lengthy Committee markup process could push the legislative actions into 2018. Ultimately, the starting points announced today will be significant.
We invite you to follow our efforts by visiting EnergyTaxFacts.com and check back regularly.
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