Crushing Oil Companies and Their Workers; Democrats Want to Double Down on Oil-Firm Income Taxes
Byline: William F. Shughart II, SPECIAL TO THE WASHINGTON TIMES
Shortly after the U.S. Energy Information Administration released a report estimating that President Obama's six-month moratorium on offshore drilling in waters deeper than 500 feet will cut domestic production by 30 million barrels during the coming year, Sen. Robert Menendez, New Jersey Democrat, announced legislation that promises to reduce oil and gas output even further, possibly delaying economic recovery.
Titled the Close Big Oil Tax Loopholes Act, the bill aims, among other provisions, to undo for one and only one industry, a U.S. Treasury rule, in place for more than a quarter-century, that allows American companies operating overseas to claim credits on their U.S. corporate income tax returns for income taxes paid to foreign governments.
The purpose of the rule applying to so-called dual-capacity taxpayers is to avoid taxing corporate income twice. The U.S. government taxes the income of its multinational corporations on a worldwide basis. Without a credit for income taxes paid into foreign treasuries, income earned outside the United States would be subject to double-taxation in the same way that the incomes of individuals would be if state personal income taxes could not be deducted in computing their federal tax liabilities.
Besides selectively raising taxes on a critical sector of the economy - the U.S. oil and gas industry employs about 9.2 million workers and accounts for about 7.2 percent of gross domestic product (GDP) - the idiosyncratic tax treatment of American companies engaged in the extraction of natural resources overseas suggests that, if passed, Mr. Menendez's bill will place domestic energy producers at a considerable competitive disadvantage relative to their foreign rivals.
Current rules allow dual-capacity taxpayers to claim U.S. income tax credits only for income taxes paid to foreign governments. They are not permitted to deduct royalties or other fees paid for production rights. Moreover, the U.S. Treasury places the burden on domestic oil and gas companies to prove that any credit claimed is in fact limited to payments of foreign taxes on income.
Mr. Menendez and his legislation's co-sponsors, Democratic Sens. …