While the 110th Congress has not yet passed any major tax legislation related to energy, the level of interest among members is so intense that it seems likely that some legislation will be sent to the President's desk. There are plenty of options. A paper from Citizens for Tax Justice from December pointed out that at very least Congress could repeal several tax subsidies that provide billions of dollars to oil and gas companies at a time when energy prices are at record highs.
Legislation Passed in the House is Only the Beginning
Back in January the House passed the Creating Long-Term Energy Alternatives for the Nation (CLEAN) Act (H.R. 6), which repealed two of the tax subsidies criticized by CTJ. The first is the domestic manufacturing deduction for gas and oil, and the second is the five-year amortization of geological and geophysical expenditures, or, in plain English, the faster write-off of the cost of exploring for oil and gas. Other provisions would close loopholes that have allowed companies drilling on public lands to avoid paying royalties. Revenues raised through these provisions would go into a fund used to increase the development of alternative energy sources.
The House Ways and Means Subcommittee on Select Revenue Measures held hearings last week on further steps the House could take, and members spoke of several possible measures. One that came up frequently was extending the Section 45 Renewable Electricity Production Credit, which is a credit for the production of energy from various alternative sources
Different Direction Possible in the Senate
Things move more slowly in the Senate, which has not acted on H.R. 6, but some Senators have indicated that they might add provisions from that bill to other energy legislation.
Last week Senator Robert Casey (D-PA) introduced a bill (S. 1238) with several energy tax provisions. An accounting method that reduces taxes for oil companies ("last in, first out" or LIFO) would be curtailed. The faster write-off for exploring for oil and gas would be repealed, as in the House bill, as would several loopholes allowing companies to escape paying royalties when they drill on public lands. The bill would also repeal another tax break criticized by CTJ, the foreign tax credit for energy companies that aren't really paying foreign taxes. The revenue raised from these provisions would go towards research on ethanol and biodiesel and towards alternative energy infrastructure.
A Windfall Profits Tax?
A more controversial part of Casey's bill would raise a "windfall profits tax" on oil companies equal to 50 percent of the portion of sales prices exceeding $50 per barrel. Companies would be able to lower or eliminate the tax by making certain investments, including investments in alternative energy production. The revenue raised would be put in a fund to help low-income people purchase gasoline or pay for public transportation.