US President Barack Obama on Monday introduced a wide-ranging proposal to save the federal government $3 trillion over the next 10 years by cutting spending and raising taxes, including the repeal of a number of tax subsidies for the oil and gas industry.
"We've got one of the highest corporate tax rates in the world, but it's riddled with exceptions and special interest loopholes. So some companies get out of paying a lot of taxes, while the rest of them end up having to foot the bill," Obama said from the White House Rose Garden Monday morning. "That has to change."
Obama sent a detailed proposal to the so-called "super committee" on deficit reduction, a bipartisan, 12-member joint committee made up of senators and representatives, who are aiming by Thanksgiving to cut $1.5 trillion from the federal deficit over 10 years.
Obama's proposal would cut more than $3 trillion over that same time period, including $580 billion in spending cuts, $1.1 trillion by drawing down troops from Iraq and Afghanistan, and $1.5 trillion from tax reform.
The bulk of that tax reform raises $1.28 trillion in revenue by allowing tax cuts to the wealthy individuals to expire. But an additional $300 billion would come from eliminating a number of tax breaks, including those to the oil and gas industry.
Among them is the repeal of the "last in, first out" accounting method for valuing inventory, which the administration says would be worth $52 billion for 10 years.
In addition, the Obama plan estimates an increase of $41 billion in revenue over 10 years by eliminating a number of tax credits and deductions for the oil and gas industry. These include eliminating the depletion allowance for oil and gas wells; repealing the use of the domestic manufacturing deduction for oil and gas production; eliminating the use of deductions for intangible drilling costs; and eliminating the use of a deduction for "any tertiary injectant used as part of a tertiary recovery method."
COAL INDUSTRY TARGETED TOO
Also, the plan would stop oil and gas companies from taking an exception to passive loss limitations, and require a two-year amortization of the geological and geophysical expenditures of independent oil and gas producers, instead of the current seven-year amortization.
The Obama plan also proposes saving $66 million by requiring oil and gas companies pay drilling permit fees to the Bureau of Land Management. The industry could also be hit with a 9.7-cent/barrel excise tax on crude oil and imported petroleum products, to fund cleanup of hazardous waste sites under the Superfund program.
Republicans, who have been opposed to any tax increases, have said that tax breaks to the oil and gas industry could be considered along with other tax reform, but not on its own.
Senate Majority Leader Mitch McConnell, however, blasted Obama's overall proposal.
"Veto threats, a massive tax hike, phantom savings, and punting on entitlement reform is not a recipe for economic or job growth -- or even meaningful deficit reduction," McConnell said in a statement.
Representative Fred Upton, a Michigan Republican who sits on the super committee, has said that revenue should be raised through expanded oil and gas development, rather than tax increases.
Even before his speech, Obama's proposal drew fire from Republican presidential hopeful Mitt Romney, who said the plan would have a "crushing impact on economic growth."
"President Obama's plan to raise taxes will have a crushing impact on economic growth. Higher taxes mean fewer jobs -- it's that simple. This is yet another indication that President Obama has no clue how to bring our economy back," Romney said in a statement.
Obama also promised a veto to any bill that made cuts to Medicare, which some have called for, without raising "revenues by asking the wealthiest Americans or biggest corporations to pay their fair share."
The Obama plan would also target tax breaks to the coal industry, which the administration estimates could mean an additional $2 billion to federal coffers over 10 years.
