By RICHARD STEGEMEIER
Asked why he robbed banks, Willie Sutton reportedly said, “Because that’s where the money is.” The American Jobs Act, which calls for collecting $40 billion from oil companies over 10 years, sounds a lot like Willie Sutton. This bill will take about $400 from the average American family, rich or poor. But is there any truth in White House advertising that this Act will create jobs? The Solyndra bankruptcy wasted a half-billion taxpayer dollars and created no permanent jobs. The ethanol subsidy of about $5 billion per year is now recognized as misguided energy policy.
We can assume that administration officials are either appallingly ignorant of how the oil industry works or they are deliberately trying to increase the cost of gasoline to reduce demand. But the latter flies in the face of President Barack Obama’s decision this summer to release 30 million barrels from the Strategic Petroleum Reserve to lower the price of gasoline.
One purpose of the Act is to punish “Big Oil” over allegedly unfair tax breaks. There are several tax policy modifications that affect only oil companies. One is the partial repeal of the American Jobs Creation Act of 2004, which allowed a 9 percent tax deduction for companies that produce goods inside American borders. Oil companies were given only a 6 percent deduction, which under the Obama plan will drop to zero. In other words, there is a silent enticement for oil companies to invest in refineries, LNG plants and storage facilities abroad, say in Mexico or Canada.
Also repealed is the Percentage Depletion Allowance – again, only for oil and gas production. For coal and other minerals the 15 percent deduction from taxable income will continue. This will hurt only the little independents because big oil companies lost this deduction 36 years ago.
The third tax repeal will disallow oil drilling companies their Intangible Drilling Cost deductions (IDC’s). At least 75 percent of drilling costs are for consumables such as fuel, mud, cement, etc. But the new law will consider these expenses the same as machines that must be depreciated over many years thereby increasing current-year taxes. This will have a serious impact on small companies that drill 95 percent of all new wells in America. They are usually not rich and often rely on IDC’s to pay for the next well.