Sen. Jeff Bingaman (D-NM), chairman of the Senate Energy and Natural Resources Committee, Wednesday said he supported a review of the Section 29 manufacturing tax credit to see whether it should be revoked for oil and natural gas production.
The Section 29 tax credit was put in place to “encourage domestic manufacturing. It’s hard to argue that producing oil [and gas] is manufacturing. But the definition of what was eligible for Section 29 got very expanded…I think it’s appropriate to look at that [production] and see whether that’s still appropriate to maintain as a domestic manufacturing incentive,” he said on E&E TV Tuesday.
Bingaman further said he supported an excise tax on Gulf of Mexico production, which would be offset by royalties paid by a producer. “That [tax] would be a way to ensure that for all of the production of oil and gas in that area the taxpayer receives something by way of royalties or excise tax. I think that’s [an] appropriate provision…We tried to pass it on the floor. We [were] not able to in the last Congress.”
In June 2007 the Senate blocked a tax package that sought to impose a 13% excise tax on oil and gas produced in the Gulf of Mexico. The purpose of the excise tax was to recover revenues from offshore producers who claimed that their produced volumes were exempt from royalties under the Deep Water Royalty Act of 1995. The tax package also would have revoked a manufacturing credit for major integrated companies for income attributable to domestic oil and gas production (see Daily GPI, June 25, 2007).
The two proposals alone would have required oil and gas producers to pay more than $20 billion in additional taxes over the next 10 years, according to the Joint Committee on Taxation.
The producer taxes resurfaced last week in the budget blueprint released by President Obama (see Daily GPI, Feb. 27). The budget for fiscal year 2010 proposes to repeal the expensing of drilling costs (costing producers $3.34 billion over 10 years); repeal percentage depletion for oil and gas ($8.25 billion); repeal the marginal well tax credit; repeal the enhanced oil recovery credit; increase geological and geophysical amortization costs for independent producers to seven years ($1.18 billion); levy a 13% excise tax on Gulf of Mexico production ($5.28 billion); and repeal the manufacturing tax deduction ($13.29 billion).
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