Rep. Gabe Evans cosponsors bill to cut taxes for large oil and gas companies
So much for his pledge to reduce the budget deficit
U.S. Rep. Gabe Evans, R-Colo., who represents Greeley and Evans in the Eighth Congressional District, has signed on to cosponsor a bill that would effectively cut taxes for large oil and gas companies.
House Resolution 662 was filed Jan. 23, and Evans is an original cosponsor. The bill’s primary sponsor is Rep. Mike Carey, R-Ohio, a former coal lobbyist.
The bill has been assigned to the House Ways and Means Committee,1 the powerful entity in Washington, D.C., that “shapes fiscal legislation including taxes, tariffs and social service programs.” The bill does not yet have any text, and it has not received a scheduling date for committee markup.
The bill’s wordy official title reads, “To amend the Internal Revenue Code of 1986 to allow intangible drilling and development costs to be taken into account when computing adjusted financial statement income.”
If you’re anything like the Gadfly, that title means a whole lot of nothing. Enter ChatGPT.
This bill likely seeks to reduce the effective tax burden on oil and gas companies by ensuring that (Intangible Drilling Costs, or IDCs) are accounted for in computing (Adjusted Financial Statement Income, or AFSI), thereby lowering their exposure to the 15% corporate minimum tax.
Still confused? Alright, let’s break it down.
What are IDCs?
Fantastic question! I don’t know. But ChatGPT does!
These are expenses related to oil and gas exploration that do not result in physical assets, such as wages, fuel and survey costs. The tax code has historically allowed them to be deducted immediately rather than capitalized.
This makes sense. Energy companies have to pay some costs just to locate oil and gas deposits, and technically those costs don’t produce “tangible” assets. The current tax code already allows those companies to deduct 70% of those costs from their tax liability in any given year and amortize the remaining 30% over five years.
Seems pretty generous already!
What is AFSI?
Sorry, I’ve failed you again. I have no idea. But thankfully ChatGPT is still tolerating me.
Adjusted Financial Statement Income is a key term under the Corporate Alternative Minimum Tax (CAMT), a 15% minimum tax on corporations with over $1 billion in financial statement income, introduced in the Inflation Reduction Act of 2022.
OK, so it’s a fancy government phrase for how much income a billion-dollar corporation generated in a given year, with the “adjustments” I’m sure being plenty of existing industry carveouts and special favors to limit the number as much as possible for tax purposes.2
And that income number is used when calculating the company’s 15% minimum tax liability, a common sense measure Democrats and former President Joe Biden put into place when they passed the Inflation Reduction Act in 2022 without a single Republican vote.
What were they paying before?
A study by the Institute on Taxation and Economic Policy, a non-partisan nonprofit, found that from 2018-22 — or before the 15% minimum tax took effect — the oil, gas and pipeline industry paid an average effective federal income tax rate of just 2%.
I’ll let ChatGPT explain why.
This low effective tax rate was largely due to various tax provisions and incentives available to the industry, such as accelerated depreciation, intangible drilling cost deductions, and percentage depletion allowances. These mechanisms allowed companies to significantly reduce their taxable income.
Hmm … I feel like I’ve seen those words before.
OK, let’s recap.
With the Inflation Reduction Act in 2022, Democrats and Biden forced billion-dollar energy companies to pay a minimum of 15% in taxes every year.
To calculate the income figure to which the minimum tax will apply, companies use their Adjusted Financial Statement Income number.
Currently, AFSI is based on book income rather than taxable income, meaning some deductions that are available for tax purposes, like “intangible” drilling costs, may not be reflected in their financial statements, and thus their AFSI numbers.
H.R.662, which Evans is cosponsoring, would allow billion-dollar energy companies to lower their AFSI numbers — perhaps considerably — by including “intangible” drilling costs.
When the 15% minimum tax is applied to their newly lowered AFSIs, the amount of taxes they owe would be smaller — again, perhaps considerably smaller.3
That seems not great.
I think so, too! From what I can gather, this bill is just a way to return billion-dollar energy companies’ tax liabilities to what they were before the 15% minimum tax came into force, but without making that change explicit.
Fewer tax dollars from billion-dollar energy companies would inevitably mean higher budget deficits in Washington, D.C., since the loss of those dollars wouldn’t be replaced with any reduction in spending, at least from this particular bill.
I wonder what Evans thinks of budget deficits …
“Reducing, and eventually eliminating, the budget deficit is critical to long term prosperity.”4
Well if that’s your stance, congressman, why are you sponsoring a bill that would inescapably grow the deficit just to give billion-dollar energy companies extra cash? Make it make sense.
Wow, that website is hilariously terrible.
We all do something similar when we do our own taxes. For example, contributions to 401(k)’s reduce taxable income up to an IRS limit. So do charitable donations and any interest paid on mortgages.
For what it’s worth, I tried asking ChatGPT to give me an idea of how much lower of a tax bill might come due under this bill for Chevon, by far the largest and most active oil and gas company operating in Colorado. Its response? “Quantifying the exact tax benefit for Chevron requires detailed financial data that is not publicly available.” Good luck to the Congressional Budget Office in determining the financial effects of this bill.
That’s taken directly from Evans’s official House website.