Stealth Energy Tax Hike on Senate Agenda for September

In a little remarked upon move earlier this month, Sen. Max Baucus (D-Mont.) put forward a legislative proposal to raise taxes on energy companies by stripping them of the ability to claim a key tax deduction.

Known as Section 199 relief, the deduction in question has been available to companies engaged in energy production, as well as manufacturing, for several years as an incentive to encourage operations and employment.

However, under an amendment introduced by Baucus, which could be voted on in the Senate next month, that deduction would be eliminated for certain players in the energy industry.

According to a memo obtained by Capitol Confidential and written by Senate Finance Committee staffers Scott Mulhauser and Erin Shields, the Baucus amendment is intended as a substitute to another introduced by Sen. Mike Johanns (R-Neb.). The Johanns amendment is itself intended to modify the Small Business Jobs Act.

The memo states that “the Democratic alternative… would repeal Section 199 of the tax code, which currently allows these corporations to deduct six percent of their income from oil and gas production from their tax liability, effective December 31, 2010.”

While the amendment is aimed at the biggest energy producers, opponents say that the amendment is still dangerous.

LSU business professor Joseph R. Mason, who has been studying the effects of the Obama administration’s moratorium on drilling on the Gulf Coast community, recently wrote in an op-ed in the Wall Street Journal that according to some research, “this repeal would cause the U.S. to increase its reliance on imported oil from politically unstable nations, cost the economy 637,000 jobs, and reduce household earnings by nearly $35 billion over the next decade.” Dr. Mason further noted that according to the Congressional Research Service, repeal would “adversely affect domestic production and increase imports.”

The Institute for Liberty, known to comment on misperceptions of energy industry profitability and subsidization similarly noted in earlier in July– when tax hikes including this one were first being mooted– that such changes would “increase taxes on energy companies and consumers.”

The Mulhauser-Shields Baucus Finance Committee memo does not address this point, focusing instead on the claimed benefit to small businesses of other provisions in the amendment.

However, opponents of the measure say they intend to raise the profile of the Baucus amendment, and all its content, ahead of any forthcoming vote.

“They can’t claim to be pro-job while being anti-business,” said one energy industry representative quoted above, “and November is just around the corner.”