The Obama Administration and many Democrats in the House and Senate have been searching for new tax revenues for quite some time. They have looked at a lot of old ideas, some not-so-old ideas, and even some new concepts. All will hit the people in the oil and gas industry hard.
The old ideas include repealing or modifying the industry’s ability to expense intangible drilling costs (IDCs) in the year they occur, and making more modifications to percentage depletion. Obama has proposed these changes in all of his budgets, but the Senate has failed to pass a budget.
During his first term, Obama proposed a cap-and-trade bill that would, in effect, put a tax on fossil fuels. A massive bill passed the House, but the Senate could not get enough votes for passage and it died.
Another idea that was touted by President Bill Clinton and his Vice President Al Gore involved taxing the energy content of fossil fuels. It was called a Btu tax after the term used to measure energy, British thermal unit. Clinton and Gore almost got their idea past the goal line, too, but were stopped just short.
Obama has put a little twist on the old Btu tax. His administration came up with the politically correct term, “carbon tax.” The carbon tax and the Btu tax are similar in that they attempt to tax the energy industry without theoretically touching consumers. Of course, consumers end up paying either by increased energy costs or shortage of supply or both.
Now, the Obama administration has come up with something totally different. Even though there were rumors several years ago that then-Speaker Nancy Pelosi wanted to tax retirement accounts, she denied the rumor.
Now, for the first time President Obama has officially announced in his 2014 budget that he wants to tax retirement accounts. This tax hits everyone over a certain monetary limit. It is not limited to just people who work in the oil and gas industry, but some people believe that if he could he would create a higher tax rate for the oil and gas industry.
The administration stated that some people have saved more for retirement “than is needed to fund reasonable levels of retirement savings.” They stated that anything over $3 million would be excessive and should be taxed.
The Wall Street Journal editorialized recently: “Not to be impertinent, but does this White House definition include being able to afford summers at age 70 at Martha’s Vineyard near the Obamas?”
The WSJ said $3 million in a retirement account is “roughly the value of a California police sergeant’s pension if she works for 30 years, retires at age 50 and live to normal life expectancy.”
Of course, most people work longer and must save from Individual Retirement Accounts (IRAs) or other forms of retirement accounts that use your own savings.
Other details about the new tax proposal – such as tax rates, and rules about how the IRS would enforce the tax – are not available, so there might be an opportunity to get a little extra from those oil and gas guys.
Alex Mills is President of the Texas Alliance of Energy Producers. The opinions expressed are solely of the author.