• Energy Tax Facts
  • 25 Apr 13

National Journal: Barry Russell: Time for Some Energy Tax Facts

The development of America’s abundant oil and natural gas reserves has generated billions of dollars in local, state, and federal revenues while creating tens of thousands of jobs and bolstering America’s national and economic security. Unfortunately, just as these benefits are beginning to be realized, the President’s budget threatens to paralyze the American businesses fueling this resurgence.

As history has shown, America’s economic health and energy security are inextricably linked. The shale renaissance in the United States alone is already creating substantial benefits for consumers, manufacturers, and governments alike. The ability to tap into our vast natural gas reserves will result in America having the lowest long term natural prices of any industrial nation, a competitive price advantage compared to any of our industrialized competitors. An increased supply of American oil is decreasing our need for foreign imports, augmenting our national security. Yet the proposed changes to the American tax code would have an immediate impact on these welcomed benefits.

Current tax provisions exist to ensure the continued safe development of our job-creating American energy resources, all while helping generate significant revenues for the U.S. Treasury. In 2010 alone, independent producers – companies with an average of 12 employees who develop 95 percent of America’s oil and natural gas – paid more than $69 billion in federal and state taxes, and they supported more than four million jobs. Despite this, the President’s budget targets these businesses.

U.S. independent oil and natural gas producers are not the recipients of special taxpayer subsidies; rather they operate within the same federal tax provisions provided to a broad range of other industries. Take, for example, the Intangible Drilling Costs (IDCs) deduction. IDCs are expenses like labor, site preparation, and renting drilling rigs that have no salvage value after they are spent, and can be deducted from a business’s taxable income. Far from a taxpayer handout or subsidy, IDCs are operator-incurred expenses necessary to produce oil and natural gas. Subsidies, by contrast, are direct payments from the government.

In the most basic terms, the tax provisions available to the oil and natural gas industry encourage additional investment in American energy development. Independent producers actually reinvest as much as 150 percent of their cash flow back into U.S. production, supporting continued job creation and more public revenues. Unfortunately, the Administration’s proposal would remove this deduction, cutting independents’ capital budgets by 25 percent, which would lead to a corresponding decline in production.

The Independent Petroleum Association of America (IPAA) has launched a new educational campaign, Energy Tax Facts, to help explain these important tax provisions and policies that apply to America’s independent oil and natural gas producers that account for the overwhelming majority of U.S. production. I urge you to check out our website,, to learn more about these important provisions that support not only American production, but every American that relies on energy each and every day.