Daily Tax Update - June 12, 2012: Finance Hearing Examines Tax Reform and US Energy Policy

FINANCE COMMITTEE HEARING EXAMINES THE IMPACT OF TAX REFORM ON US ENERGY POLICY:  Today, the Senate Finance Committee heard testimony from witnesses on tax reform and energy policy.

  • The witnesses were:
    • The Honorable Don Nickles, Chairman and CEO, The Nickles Group, LLC
    • The Honorable Phillip Sharp, President, Resource for the Future
    • Dr. Dale Jorgenson, Samuel W. Morris University Professor, Harvard University
    • Mr. Harold Hamm, Chief Executive Officer, Continental Resources Inc,
  • Committee Chairman Max Baucus said, “Tax reform is an opportunity for the energy sector to make real progress.  It can move us further from foreign oil.  It can lead us down a road to diverse, clean and secure energy resources.  So let us seize this opportunity.  Let us use tax reform to ensure our country has a more secure and diverse energy supply.”
  • In his opening statement, Ranking Member Orrin Hatch said, “I know many of my colleagues on both sides of the aisle hope to achieve a tax reform that lowers rates while broadening the tax base.  However, from my perspective, there is another feature that will be essential for any successful tax reform.  Tax reform should be about tax reform — not about deficit reduction.  We should be simplifying our tax code and lowering rates to create a more fair system that generates the economic growth necessary to generate jobs and revenue.  It would be a mistake to call tax increases tax reform, and use that increased revenue to achieve deficit reduction rather than pro-growth rate reductions.”
  • Former Senator Don Nickles testified, “Mr. Chairman, if you do tax reform correctly, there will never be a need to hold an ‘energy’ tax hearing ever again, because tax reform should seek to treat energy companies and the products they produce just like everybody else.  No subsidies, and no penalties.  If the tax system you devise encourages investment (as it should), energy companies will benefit just like other companies.  If a lower corporate rate and simplified territorial system make US companies more competitive (which it will), energy companies will benefit just like other companies.  Just as the tax code should not subsidize energy, neither should it impose punitive penalties on energy companies as the President’s tax proposals seek to do.”  Nickles added, “Finally, Mr. Chairman, the President has one particularly onerous proposal that would penalize only US‐based oil and gas companies and disadvantage them relative to their foreign competitors.  Known as the “dual capacity” provision, this proposal would deny US oil and gas companies a credit for taxes paid to foreign governments, causing them to be taxed twice.  This higher tax burden means US companies would be disadvantaged as they compete to win access to oil and gas production projects all over the world.”
  • Former Representative Sharp stated, “I think it is obvious that a carbon tax proposal is not ready for prime time.  Indeed, there is a clear need for greater analysis, more consideration of design options, and extensive vetting with various sectors of the economy.”
  • Mr. Hamm testified, “The tax provisions that let us keep our own money to reinvest in drilling are crucial to keep this energy revival going. . . . There are unintended consequences of tax code changes to an industry that holds the key to job creation, balance of trade and national security.  Most concerning is the fact that eliminating tax provisions for independent oil and gas producers would slow down, if not stop, America’s march to energy independence.”
  • Testimony can be accessed here.
  • For additional information, contact Philip R. West - pwest@steptoe.com or Amanda Pedvin Varma - avarma@steptoe.com.

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:
As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing, or recommending to another party any plan or arrangement addressed herein.

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