AFP Energy Tax Policy
Americans for Prosperity advocates a tax code that supports economic growth and is designed to generate revenue for the government, not pick winners and losers in the market. To that end, AFP supports a corporate tax code with low rates and few special provisions. To the extent that the code does include rules to reduce the tax burden, those rules should be broadly applied and not unique to one industry or sub-industry.
Energy tax policy is especially ripe for market distortions, backroom deals and special treatment for political allies. AFP supports the elimination of tax code provisions that are designed to advantage one entity over another and opposes creation of new provisions with a similar effect. Additionally, AFP opposes using the tax code to attack politically vulnerable energy producers that are simply using the same tax rules as everyone else.
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The federal government currently provides the ethanol industry with three protectionist measures.
• The Volumetric Ethanol Excise Tax Credit (VEETC) currently provides a refundable tax credit (which will result in a direct payment from the Treasury if an entity’s tax liability falls below zero) of 45 cents for each gallon of ethanol blended into gasoline. In 2010, the federal government incurred $6 billion in VEETC payments.
• The import tariff on foreign ethanol is actually two tariffs: a 54 cent Most Favored Nation duty and a 2.5 percent ad valorem tax. These tariffs shield domestic ethanol producers and drive up prices by blocking the more cost effective sugar-based ethanol from abroad.
• Using a Renewable Fuel Standard, the federal government mandates that America use 35 billions gallons of ethanol by 2022. The EPA recently increased the amount of ethanol that can be blended with gasoline from 10 to 15 percent in order to accelerate compliance with this mandate.
Americans for Prosperity supports the elimination of all three of these artificial and ethanol-specific laws.
Click here to take action and urge your lawmakers to repeal ethanol subsidies
America has an abundance of natural gas, and it may very well prove to be our fuel of the future. However, compressed natural gas (CNG) should not receive special tax treatment to encourage its adoption. CNG should have to prove itself in the marketplace in order to justify its use as a new fuel source.
• The Alternative Fuel Excise Tax Credit currently provides a refundable tax credit (which will result in a direct payment from the Treasury if an entity’s liability falls below zero) of 50 cents per gallon sold or used for fuel to operate motor vehicles. This credit applies to CNG, liquefied natural gas, liquefied petroleum gas, compressed or liquefied gas derived from biomass and a few others.
• Congressman John Sullivan (R-Okla.) has proposed extending the credit for CNG until the end of 2016.
• Sullivan also wants to create a tax credit ranging from $7,500 for the purchase of a passenger vehicle designed to run on CNG to $64,000 for heavy duty vehicles.
Americans for Prosperity opposes the use of the tax code to promote the use of natural gas as a vehicle fuel or to subsidize the purchase of natural gas vehicles. If natural gas is a worthwhile fuel source it should prove itself in the marketplace, not be handpicked by industry lobbyists and DC politicians.
Click here to take action and urge your lawmakers to oppose natural gas subsidies!
The domestic oil industry is being singled out and attacked because some people don’t like the product they sell or the profits they make. Senator Max Baucus along with many others wants to increase taxes on oil and gas producers, claiming they don’t need government subsidies.
However, the vast majority of the tax provisions that critics want to change are broad tax provisions that most corporations have equal access to. Americans for Prosperity opposes changing these rules only on the oil and gas industries. Changing these provisions to attack a politically unpopular industry is an inappropriate use of the tax code.
• Section 199 Domestic Production Activities Deduction provides all qualified domestic manufactures with a 9 percent deduction in their taxable income. The oil and gas industry are already singled out under this rule and are only allowed to use a 6 percent deduction. This rule was put in place to support domestic production and it is ironic that the same people who claim to want to “reduce our dependence on foreign oil” would seek to further isolate oil and gas companies from tax deductions design to support domestic production.
• Foreign Tax Credit: companies that pay levies to foreign countries on the income they earn in that country are allowed to deduct those taxes from their taxable income when calculating their US taxes. This rule properly recognizes that foreign taxes are not income and thus provides a credit in order to avoid double taxation of those dollars. Critics claim this rule subsidizes oil and gas companies by encouraging them to offshore their production. However, removing the credit would cause foreign countries and the U.S. to both tax the same dollar and incentivize companies to move their operations away from the double taxing regime, out of the U.S.
• Intangible Drilling Costs: oil, gas and mining companies are currently allowed to deduct the cost of wages, fuel, repairs, supplies, drilling muds, chemicals and cement needed to explore, survey and prepare a new well. These new wells obviously do not always yield recoverable resources; nearly half are “dry holes.” Because these activities are the equivalent of research and development, companies are allowed to treat these activities as expenses deductible in the year they occur, as opposed to depreciating them over time as the tax code provides for other forms of capital investment. Allowing these deductions is not a subsidy as critics claim, it is supporting research and development just as the tax code allows all businesses to do.
Americans for Prosperity opposes any changes in the tax code that target specific industries for tax increases because some people don’t like their product or profit. Oil and gas companies should have access to the same tax deductions as everyone else. Singling them out for tax hikes by removing their ability to use these broadly applied rules is not a properly use of the tax code and will only increase costs for consumers.
Click here to take action and tell your lawmakers you oppose new energy taxes!