U.S. Senator Menendez introduces pair of bills to hold Big Oil accountable
Legislation would close tax loopholes long-exploited by the largest oil companies who have seen record profits in 2022
WASHINGTON, D.C. – U.S. Senator Bob Menendez (D-N.J.), Thursday introduced a pair of bills aimed at holding Big Oil accountable.
The bills would repeal tax subsidies and other incentives long-enjoyed by the largest oil corporations that continue to rake in record profits, and would penalize oil companies who fail to develop federal leases to inflate their reserves and share prices, while American families face economic struggles.
“The American people shouldn’t have to subsidize Big Oil CEOs and shareholders while families are hit with high prices at the pump as the economy continues to recover from the pandemic and now Putin’s illegal war in Ukraine,” Menendez said. “These bills put American taxpayers ahead of the corporate oil industry who for far too long have been enjoying economic windfalls on the backs of hardworking Americans.”
The Close Big Oil Tax Loopholes Act aims to eliminate tax incentives exploited by large oil companies for a century or more in some cases. The bill was first introduced in 2010 and was reintroduced in 2017 during the 115th Congress. Sen. Menendez has championed this legislation in multiple Congresses to prioritize middle-class households ahead of the oil industry.
The new version of the bill expands its scope to include any oil and gas company with gross receipts over $50 million, and includes new provisions to eliminate the enhanced oil recovery credit for companies with gross receipts over $50 million, and eliminate access to the 45Q credit for all enhanced oil recovery operations.
The second bill, the Use It or Lose It Act, would incentivize oil and gas companies to develop their federal oil and gas leases. Specifically, it requires the Secretary of the Interior to establish development benchmarks and requirements for lease-holders to hit after securing a federal oil and gas lease, and implements a $10/acre annual fee on federal oil and gas leases that don’t produce oil or gas in a given year. The Secretary would be required to adjust the fee at least once every 5 years to ensure that it adequately incentivizes the diligent development of leases.
The bill, co-sponsored by Sen. Jack Reed (D-R.I.), is intended to disincentivize oil companies from holding onto non-producing leases in order to inflate the reserves that they boast to shareholders, while limiting supply and gouging consumers at the pump. The oil industry is utilizing less than half of the federal land that they already have, all while declining to increase production and raking in record profits off the backs of American families.
Summary in the close the Big Oil Tax Loophole act:
- Foreign Taxes/Royalties. U.S. taxpayers are taxed on their income worldwide, but are entitled to a dollar-for-dollar tax credit for any income taxes paid to a foreign government. U.S. oil and gas companies have been accused of disguising royalty payments to foreign governments as foreign taxes. This allows them to lower their taxes in the U.S. The bill would close this loophole that amounts to a U.S. subsidy for foreign oil production for major integrated oil companies.
- Intangible Drilling Costs. This section would deny oil companies with gross receipts over $50 million the option of expensing Intangible Drilling Costs (IDCs) and require such costs be capitalized. IDCs are expenditures such as wages, fuel, repairs, hauling, and supplies necessary for the drilling of oil wells. Currently, integrated oil companies can expense 70% of the cost of IDCs. The bill requires companies with over $50 million in gross receipts to capitalize all of their IDC costs.
- Percentage depletion allowance for oil and gas wells. Firms that extract oil and gas are permitted a deduction to recover their capital investment under one of two methods. Cost depletion allows for the recovery of the actual capital investment-the costs of discovering, purchasing, and developing the well-over the period the well produces income. Under this method, the taxpayer’s total deductions cannot exceed its original investment. Percentage depletion allows the cost recovery to be computed using a percentage of the revenue from the sale of the oil or gas. Under this method, total deductions could (and often do) exceed the taxpayer’s capital investment. The bill repeals percentage depletion for oil companies with gross receipts over $50 million.
- Tertiary Injectants. Tertiary injectants are used in enhanced oil recovery to drive more oil from an existing well. Currently, oil companies are allowed to deduct the cost of tertiary injectants rather than capitalizing their costs and recovering them over time. The bill requires oil companies with gross receipts of more than $50 million to capitalize the cost of tertiary injectants it uses during the year and recover those costs over time.
- Enhanced Oil Recovery Credit. The Section 43 enhanced oil recovery credit allows companies to claim a credit for up to 15% of eligible enhanced oil recovery costs. This provision would eliminate access to the enhanced oil recovery credit for companies with gross receipts over $50 million.
- 45Q for Enhanced Oil Recovery. The Treasury Inspector General for Tax Administration found that from 2009-2019, the oil and gas industry improperly claimed almost $900 million in 45Q credits, accounting for 87% of the total 45Q credits claimed. Data shows that enhanced oil recovery operations are largely responsible for these improperly claimed credits. This provision would eliminate access to the 45Q credit for enhanced oil recovery.
- Outer Continental Shelf Deep Water and Deep Gas Royalty Relief. Repeals Sections 344 and 345 of the Energy Policy Act of 2005. Section 344 extended existing deep gas incentives and Section 345 provided additional mandatory royalty relief for certain deepwater oil and gas production. These changes will help ensure that Americans receive fair value for federally-owned fossil fuel resources.
- Deficit Reduction. All savings realized as the result of the bill’s elimination of the tax breaks and other subsidies currently going to the major integrated oil companies are devoted to deficit reduction.