Rappers Over Roughnecks
July 29, 2010
The BP spill has so angered the public that Congress thinks it can get away with – nay, even look like heroes doing – what it normally would not dare to do, enact punitive taxes on oil under the guise of "closing loopholes."
Congressional tax-writers are normally wary of taking aim at the oil patch because voters understand that oil taxes mean higher prices at the pump. So Congress is jumping at the chance, and the two worst pieces of the legislation being pushed through are skewered quite effectively by LSU banking professor Joseph Mason in the Wall Street Journal.
One of the tax changes is a violation of all normal standards of how to apply the foreign tax credit. Oil companies that pay corporate tax rates abroad that are higher than the corporate tax rates that other firms pay would no longer be able take credit for their entire payments on their U.S. tax returns. Instead, they could only take credit for the amount they would have paid at the lower rate. It is quite common in oil-producing nations like Saudi Arabia (85%) to levy a much higher corporate tax on mineral extraction firms, including oil companies. If this Congressional proposal is signed into law by President Obama, U.S. oil companies will be paying tax to two countries on the same dollar of income.
The second tax change that would never go through without the current BP spill is one that would take away from oil companies a manufacturing tax credit that was enacted in 2004 to promote all "domestic manufacturers." Not to disrespect rap recording artists or their recording companies, but if they qualify for the credit as "manufacturers," and they do, then oil companies with their huge manufacturing facilities, rigs and refineries ought to qualify. I guess Congress loves rappers more than roughnecks.