Congress should not kill this crucial energy industry tax deduction
Business taxes are applied properly after offering production costs: wages and salaries, materials and energy costs, costs for accessing and maintaining buildings, etc. After all, these costs are not part of the business income – except for the limit in which their payments are income for the main workers and suppliers who pay the required taxes. Imposing business income for any company without excluding these costs will be a stark double tax.
But what about the “B-Sess” taxes, which companies pay to government governments and local governments? Analytically, these taxes are payments for the services provided by states and localities. Whether that deserve paid taxes-such taxes are not voluntary, meaning that most of the purchases in the private sector-are an interesting question, but it is not related to the basic principle of that B-SAL payments for governments are the cost of doing business.
Accordingly, these taxes must be excluded from the definition of “income” subject to other taxes. Thus, the B-SELT discount is necessary and appropriate in the tax system in which the base is for income costs.
But there is some Republican support in Congress to eliminate or reduce the B-SALT discount in order to help “pay” the extension of the tax cuts for the year 2017, as well as other tax cuts proposed by the Trump administration’s second and member of the various members of Congress.
The alleged revenue is “provided” by reducing or canceling the B-SELT discount: about $ 223 billion over 10 years if discounts for companies and local income taxes are completed, and about $ 209 billion if discounts for property taxes are completed.
Only in the ALICE-LONDERLAND world of Congress, a clear tax increase imposed on companies can be seen as “savings”. The most relevant issue is the impact of political transformations on the economy that is largely written and specific sectors for others. A recent analysis of the Taxes Institution finds that canceling the B-SAL discount for both income and property taxes would reduce the long-term GDP in the long run by 0.6 percent.
The tax institution report is unclear on how to calculate the effect of this gross domestic product, but the central principle is proper: canceling or limiting the B-SALT discount will represent a significant increase in imposing taxes on business. The result will be less investment in capital, reduce work productivity, decline in wages and decrease in gross domestic product in general.
The energy sector is especially vulnerable to the harmful effects of restrictions or cancellation of salt B, because in addition to income and property taxes, fossil fuels producers must pay significant taxes in the separation of several states. In 2024, the total payments reached about $ 17.6 billion. These garbage payments show that fossil energy resources are a form of national wealth, whose value is divided between investors, workers, landowners and suppliers in proportions paid at competitive market prices. Governments receive a share, which is largely determined by government tax policies.
For 2024, Energy Information Management reports “First purchase” of crude oil at about $ 75 a barrel, and the total production of about 4.8 billion barrels, leads to the total value of production of about 360 billion dollars. For natural gas, the average wholesale prices is about $ 2 per 1000 cubic feet, the production of about 37.8 trillion cubic feet, or the total production value of about $ 76 billion in 2024. The total is about $ 436 billion.
On average states and localities, about 10 percent of oil and gas sales revenues. Federal companies income rate is 21 percent. If we assume an effective tax rate of 15 percent after different differences and credits, the cancellation of the B-SAL opponent will increase the taxable income for fossil fuel producers by 10 percent, and tax opponents-a decrease in net income-by 1.5 percent.
Oil and gas production is thick capital, so the next effect on production will not be important in the short term, because capitalist assets will remain in place (although drilling platforms, for example, can be stopped). But in the long run, investment and production will be affected.
With reasonable assumptions about long -term display conditions, the 1.5 percent net income decrease will lead to an annual decrease of about 4 to 5 percent. This is not trivial. It will represent a decrease of about $ 20 billion in national wealth, which will be economically effective for its production.
The B-SELT discount is not similar to the individual and local tax discount (SALT) for people who make up federal income tax obligations. Individuals are not companies, and just as they are not allowed to deduct regular costs of living (for example, grocery bills), there is no justification for allowing salt discount. The US tax law allows such a discount, whether limited or not, driven by demands for interest in Congress to deduct salt as a way to transfer government costs and local government in tax countries in low -tax states.
But this is different from the B-Selt discount. The governmental and local taxes paid by companies are the cost of doing business. Congress should take this central reality in mind.
Benjamin Zisher is an older colleague at the American Projects Institute.
