Removing tax preferences for U.S. oil and gas producers: discussion paper

The Council on Foreign Relations (CFR) just published a paper by Gilbert Metcalfe of Tufts, on the implications for the U.S. in the case of the removal of three “tax preferences” for the oil and gas industries, to the tune of $4 billion a year.  The question of the need for these subsidies comes in the face of increased domestic production, and decreased global and domestic prices for oil and gas.

The author tells us he is using a new approach to predicting the results of tax reform.  He compares the loss of each of the three tax preferences: percentage depletion, intangible drilling costs, and manufacturing deduction, against the backdrop of how the industry and the markets react to a similar change in price.  By doing this he says he is able to use existing research instead of only the “proprietary databases of U.S. oil and gas fields and models of the economic effects of tax reform.”

A few findings: domestic oil production would decrease 5%, natural gas production between 3% and 4%. The global price of oil would increase 1%, domestic natural gas by 7-10%.

The implications of production and market predictions are discussed in terms of U.S. energy security and fiscal benefits, as well as global greenhouse gas emissions.

For a non-economist, this paper is both understandable and dramatic.  It leads the reader to a case for tax reform, with the solution based only on the facts.  It can be downloaded from the CFR link above.


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