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May 13, 2021
The Honorable Nancy Pelosi
Speaker of the House
H-232, The Capitol
Washington, DC 20515
Dear Speaker Pelosi and Leader Hoyer:
There is bipartisan agreement on the need to improve our nation’s roads and bridges, broadband connectivity, and energy infrastructure to keep our economy moving forward. Despite significant areas of agreement, another partisan approach is being contemplated to ram through a lengthy list of progressive policies and backbreaking tax increases. Many of these proposed and devastating tax hikes are punitive measures targeting the oil and gas sector and the 11 million high-paying jobs supported by the industry. It’s one thing for policies to accelerate investment activity or production of certain products, but it is an entirely different matter to write laws that would punish a particular industry, especially one that is so fundamental to our economic growth and national security. Using an “infrastructure” package to weaken our energy infrastructure is a grave mistake that will hurt families, farmers, and small businesses still recovering from the pandemic.
While oil and gas, like many U.S. industries, will suffer from broad sweeping tax increases, they are also being singled out, targeted, and denied the same tax treatment that is available to every industry in the U.S. economy. Oil and gas producers are being falsely characterized as the beneficiaries of “tax subsidies” and “loopholes”. President Biden’s infrastructure plan calls to “eliminate tax preferences for fossil fuels” and corresponding Democrat legislative proposals leave no question as to what is slated for removal. For example, lawmakers are pushing to remove essential provisions like Intangible Drilling Costs (IDCs) and Percentage Depletion, which are crucial tools for weathering a volatile and unpredictable industry. Some are pushing to eliminate Enhanced Oil Recovery (EOR) from Section 45Q, which is antithetical to efforts to lower carbon emissions.
IDCs are not credits, loopholes, or subsidies. They are ordinary and necessary deductions, and a far cry from the lavish tax credits flowing to wealthy green energy investors and electric vehicle owners. Our tax code is designed to levy taxes on net profits, not on dollars used for operational costs or capital expenditures. Every business since the inception of the tax code, has used cost recovery provisions. Similarly, the expensing of IDCs allow companies to recover costs such as labor, site preparation, equipment rentals, and other expenditures for which there is no salvage value. It is important to note that 80 percent of IDCs are associated with labor costs. It is also important to note that the independent oil and gas industry, which accounts for 80 percent of our nation’s oil production and 90 percent of its natural gas production, would be hit hardest by the elimination of this provision. IDCs often represent 60 to 80 percent of total production costs and repealing them could result in the loss of over a quarter million jobs by 2023.
Before waging war on the oil and gas sector, it should be remembered that the industry supplies nearly 70 percent of America’s energy needs at a low cost for millions of families, as household energy costs have decreased 15 percent in the last decade alone. The industry has given the United States enviable energy independence and, as a result, enhanced national security. Production of oil and gas provides much-needed tax revenues for federal, state, and local governments to fund education, infrastructure projects, and helps to provide salaries for teachers and first responders. Additionally, less than half the content of a barrel of oil goes towards gasoline, as the industry produces critical products used for fertilizers, pharmaceuticals, medical supplies, and a host of pivotal technologies. An infrastructure package should not include punitive tax provisions that would cripple a vitally important industry, lead to mass layoffs, skyrocketing energy costs for working families, higher prices at the gas pump, and give China and Russia the upper hand in a competitive global market. Policymakers should not be picking winners and losers, and if the oil and gas industry is truly the “loser” that far left progressives want it to be, the market should decide.
Our nation has been blessed with abundant and affordable energy resources that have been a driving force of job growth and have given America economic advantages over totalitarian foreign competitors. We urge you to put American families ahead of special interests in any legislative package and work with us to accelerate our economic recovery.