Tax Cuts for Halliburton
"I think we ought to look at people who are trying to avoid U.S. taxes as a problem." President George W. Bush###
Halliburton enjoys skyrocketing revenue because of its government contracts, but Congress thinks the company needs special help that can only be described as corporate welfare. The tax cuts and government handouts are found in the "Energy Policy Act of 2003." The Congressional Budget Office (CBO) estimates the proposed tax cuts and subsidies for energy companies will reduce government revenues by $25.7 billion over ten years. The nonprofit advocate Taxpayers for Common Sense estimates the handout will cost more like $95 billion over ten years. They call the legislation an attempt to "pad the bottom line of big industry while saddling the rest of us with debt for years to come." They speculate that the $400 billion federal deficit could reach $5 trillion by 2013 because of such reckless giveaways. Other critics say the legislation is unnecessary for mature energy firms like Halliburton. Furthermore, critics want to know why the energy industry needs special tax cuts at a time when profits are promoted by record high energy prices and two wars in the Middle East. The legislation is nothing more than "payback" for the energy financiers of the Bush/Cheney election campaign.
The Energy Policy Act of 2003 was passed by the House of Representatives in November, but it is currently stalled in the Senate.
In addition to tax cuts, pending legislation would prohibit the Environmental Protection Agency from regulating a lucrative drilling technique pioneered by Halliburton and which contaminates drinking water supplies. The legislation also exempts the construction of oil and gas plants from the Clean Water Act and weakens prohibitions on development off the California coast, prohibitions first put in place in 1990 by President George H. W. Bush and then extended to the year 2012 by President Bill Clinton.
How the tax cuts work, accelerated depreciation
The law forbids corporations from deducting all expenses for equipment and heavy machinery in the year such expenses are allocated. Instead, these expenses are deducted in installments over a term of years or over the life of the asset. For example, drilling companies are required to deduct the expenses for constructing an oil well during the entire life of the well. But the pending legislation would allow drillers to deduct all such expenses over just two years. This is known as "accelerated depreciation" because deductions are accelerated over a two year period instead of the entire life of the asset. It is also a fancy way of giving a tax cut to big energy companies. The Joint Committee on Taxation says the proposal would cause a $2.4 billion loss in government revenue over 10 years.
Congress also wants to allow energy companies to deduct the cost of building natural gas pipelines over seven years instead of the current 15 years.
Energy firms typically pay a royalty to the federal government for the privilege of drilling for oil and gas on federal lands. But Congress wants the government to stop charging a fee to Big Oil when it drills on public lands located in the Gulf of Mexico. This proposed giveaway will cost U.S. taxpayers an additional $94 million over 10 years because of the uncollected royalties on the public leases.
The legislation also extends a 1978 law that provides a tax credit equivalent to $3 per barrel of oil for "unconventional" fuel sources. But "unconventional" fuel actually means "conventional" fuel. According to the Washington Post, "While the law applies to companies using exotic sources of energy, such as landfill gases, by far the largest beneficiaries have been companies drilling for methane gas trapped in underground coal seams." This form of corporate welfare provided to firms like Halliburton will cost the U.S. taxpayer $2.5 billion to $3 billion over 10 years.
House Ways and Means Committee: Explanation of energy bill
Washington Post: Energy Bill's Tax Breaks Weighed on Hill
Investopedia.com: Definition of accelerated depreciation
Congressman Waxman: Why Californians should oppose the energy bill
GAO's report on Dick Cheney's energy task force
Knight-Ridder: House passes energy bill that has something for almost everyone