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ENERGY

Big Oil Getting Nervous About Tax Reform

The American Petroleum Institute is in full-throttle defense mode as Washington primes for corporate tax reform next year. In fact, while they won’t say it outright, officials at the powerful oil-industry group seem to indicate they would prefer that tax reform did not happen at all.

“We’re certainly wary of change,” API tax manager Stephen Comstock said at a press luncheon briefing on Thursday. “In the past, we recognize that when we get in and start tinkering … we may not always come out ahead.”

 

API scheduled the press event in the wake of two of Washington’s most prominent Republicans—GOP presidential nominee Mitt Romney and House Energy and Commerce Chairman Fred Upton, R-Mich.—explicitly saying that at least some oil and gas tax breaks would likely be eliminated as part of overall corporate tax reform that Congress hopes to tackle next year.

“If we get that tax rate from 35 percent down to 25 percent, why, that $2.8 billion [of oil and gas tax breaks] is on the table,” Romney said during last week’s debate with President Obama in Denver. “Of course, it’s on the table. That’s probably not going to survive, [if] you get that rate down to 25 percent.”

During a debate with his Democratic challenger Mike O’Brian on Sunday, Upton sounded a similar tune: “Let’s look at the oil and gas subsidies and let's take them away. Let’s let them compete just like everyone else at the same level.”

 

The comments by Romney and Upton represent a stark change in tone. Over the past year or more since Washington policymakers started to talk seriously about cutting the federal deficit and reforming the tax code, Republican politicians and officials from the oil and gas industry have repeatedly said that the sector’s tax breaks should be “on the table” — a politically appealing term that often doesn’t really mean much. But the Romney and Upton remarks make the bargaining on that metaphorical table sound potentially much more real and more imminent than ever before. That’s making API officials nervous.

When asked whether they would prefer corporate tax reform to not happen at all, about 10 seconds went by before either Comstock or Brian Johnson, API’s top tax lobbyist, responded at all.

“Tax reform will be a complicated process,” Comstock finally said. “There will be a lot of things that we don’t know will happen. I think our members are wary of how that process will take place. But they are absolutely willing to be at the table and engaged in it should it come about.”

Neither Comstock nor Johnson would comment specifically on Upton’s or Romney’s comments.

 

Defining what exactly is an oil and natural-gas tax break (or subsidy or tax credit) is a moving target and seems to change depending on one’s political motivations. According to an Energy Information Administration report from 2011 — the one Romney cited in the Denver debate — the oil and gas industry gets about $2.8 billion in tax deductions a year. President Obama and environmental groups put that number closer to $4 billion, in large part because they include a manufacturing tax credit that goes to a wide range of industries, including the oil and gas sector.

During the press briefing, Comstock and Johnson refused to get into details about which specific tax breaks they would consider eliminating, noting that such detailed conversations were premature since no actual corporate tax-reform legislation exists yet.

“We are up there [on Capitol Hill] educating them on what the provisions are,” Comstock said. “We recognize that not everyone understands what IDC [intangible drilling costs] are. We recognize that not everyone understands what tertiary injectants are. We’re up there explaining them and how they fit into the context and how they drive their place in the economy.”

Johnson also warned that Congress should not use the oil and gas industry’s tax breaks to offset sequestration during the lame-duck session, a consideration that has come up in Washington.

“There’s this idea for this potential tax reform before tax reform,” Johnson said. “If it’s tax reform before tax reform without a lower rate, it’s a tax increase. We certainly oppose all targeted tax increases on the industry.”

The oil-industry trade group has spent about $3.44 million lobbying Congress this year (compared to $8.6 million last year), according to data compiled by the Center for Responsive Politics. The top issue API is lobbying on? Taxes.

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