U.S tax policies on oil and gas
Introduction
Oil and gas industry is a capital intensive industry, with key players who are well financed. The process of exploration to find oil mines, the extraction of oil and finally refining it to a usable commodity is what makes it very expensive. Other costs are also incurred for instance marketing the product and transporting it. Around 80% of the world’s oil and gas reserves is controlled by the national oil firms, from which 20 of the largest companies are majorly state owned companies, while oil produced by the biggest oil suppliers is recorded to be less than 15% of the world total supply currently.This industry is key determinant in operation of any nations as energy is needed to spin the wheels of economy, this has to be handled cautiously lest the economy may drop to its knees, as many industries and businesses may suffer.oil consumption ranges from as high as 53%in middle east, 44% in Africa, 41%i north America to as low as 32% in Europe
Most governments have to be careful with this subject; most of them have developed favorable policies to ensure a smooth run of energy production in their nation while neglecting other major setbacks that are brought by such hostile dependency on these resources. some of this may include heavy subsidies creating even major tax breaks or holidays under every step of oil production until it reach to the consumers, from exploration all the way to the consumer market bumps have been smoothened to create a friendly place for this activities. This has been extended up to subsidies in field leases and procurement of equipments used for such projects. This has created many loopholes which are opportunities of such stake holders to misappropriate and benefit themselves against the tax incurred by public citizens to finance all those bills and benefits (Cordes, 78).
The government has had to overlook on some of the negative effects brought by his kind of dealings which include water pollution. Those companies have not been held responsible for mistakes like oil spills in water reservoirs during combustion of the fossil fuels. Air is also polluted as green house gases are freely exposed to the public. The pollutants include volatile organic compounds, sulphur dioxide, nitrogen oxides and heavy metal (Hennessee, Patrick, Sean, 145). The government should instead authorize strict management of end products, and create heavy fines to discourage human health being exposed to such hazardous careless exposures. Price control of products has been dictated with little or unnoticeable government interference, therefore, big companies have fully exploited their consumers who have no better affordable and lasting alternative.
The policy makers should authorize prices, and shield consumers from experiencing major price shakes while the big corporations make billions of the exploited consumers. The government has also failed to condition peak energy consumptions which have increased fears that oil, and gas industry may face a major shortage in few years to come as products like petroleum are non- renewable and may face depletion (Wright, Charlotte, Rebecca, 201). Most corporations worldwide are owned by people who are policy makers in the government or have indirect say in formulation on any policies. They, therefore, remove sound reasoning and ensure their products are consumed without much control or say by the public. Tax discounts or write offs allowing companies to maximize net profits is also too much considering the stakes being accounted for in this industry, which could instead be used to fund other government projects. The demand for oil keeps increasing everyday with thousands of barrels annually as population increases and energy utilities are manufactured daily, this should then reduce economies of scale for these producers and therefore government should tie their profit margins lest they become too powerful corporations to be controlled.
On the other hand, facts dictate equality in every sector of the economy, in that efforts should not be highly taxed or penalized just because the returns are higher than of any other sector. Oil industry movements and lobbyists groups have argued before and well expressed their concerns one of them being why there should be exempted from benefits enjoyed in other sectors for instance tax write of. They have pleaded that if this is done their costs will rise very high and research, exploration and other costs will not be met thus putting their business to risk and may end up putting their money elsewhere killing this industry. Policies have been misquoted for instance the manufacturers tax deduction , which was otherwise known as section 199 which was enacted by the u s congress in the year 2004 (Metcalf, 107). It was meant to encourage manufacturers to relocate from their overseas jobs to the U.S, where there was a reduction of up to 66% of what other manufacturing industries are allowed to deduct yet, a lot of noise was made on this particular provision, while it applied to a larger group than the oil and gas industry
The media has also provided a lot of unfounded critics on this industry like the famous controversial provision were one on Intangible Drilling expenses. These costs on drilling or excavating mines are incurred and the provision offers independent contractors adoption to expense these costs on the ear they are incurred or, to amortize them over a spread of 5years, which sounds fair as this costs is not evaded (Steuerle, 190). The industry has also experienced lower risks on exploration of oil and gas both financially and personally over the recent years due to some write offs on expenses on drilling. These have been diverted to develop software which are now used to make decisions at lower risks This has also led to advances in seismic analyses and drilling techniques that cut own costs, therefore, this write off policies have had some long term advantages.
Conclusion
There are a few tax advantages which can only be enjoyed by those in the oil and gas industry for instance that allowing the industry related companies to register under master limited partnerships. This is to avoid double taxations and also while trading interests on the market similar to the one on the corporate stock. Not everyone is interested in bill that champion the oil and gas industry and most policy makers have had the chance to do away with those bills yet they passed them. When the tax reform legislation in 2011 was introduced, and meant that it would eliminate all tax incentives for the oil and gas industry in U.S but analysts say that there is very minimal chances of it being done away with. However, this industry needs to be adopted by the public and shares sold to the public under stock exchange so that any improvements geared, to better this industry may benefit a wholesome of individuals. This will promote support for other favorable bills and a long term benefit to the nation as a whole.
Work cited
Cordes, Joseph J. The Encyclopedia of Taxation & Tax Policy. Washington, D.C: Urban Institute Press, 2005. Print.
Hennessee, Patrick A, and Sean P. Hennessee. Oil and Gas: Federal Income Taxation. Chicago: CCH, 2008. Print.
Metcalf, Gilbert E. U.s. Energy Tax Policy. Cambridge: Cambridge University Press, 2011. Print.
Steuerle, C E. Contemporary U.s. Tax Policy. Washington, D.C: Urban Institute Press, 2008. Print.
Wright, Charlotte J, and Rebecca A. Gallun. Fundamentals of Oil & Gas Accounting. Tulsa, Okla: PennWell, 2008. Print.
