For those small business groups who are thinking that Big Oil will foot the bill for any energy tax title enacted this year, a new CRS report issued Tuesday provides little comfort.
The report, entitled “Oil and Gas Subsidies: Current Status and Analysis,” summarizes the current state of tax provisions targeted directly at the oil and gas industries. What they found is those tax “subsidies” are not as valuable as many people have assumed. As the report concludes:
“Although the above oil and gas tax subsidies may not be justified based on economic theory, and considering the high oil and gas prices over much of the policy period, they are not large when measured relative to the industries’ gross product, which measures in the hundreds of billions of dollars. Another misconception is that industry was the beneficiary of many and significant tax breaks before these provisions were enacted. The industry did benefit historically from significant tax subsidies; however, most of these had been either eliminated or pared back since the 1970s.”
Bottom line: For all the talk of eliminating big tax subsidies for big oil, the best minds in Washington can only come up with about $10 billion over ten years in revenue raisers. That’s a lot of money in the traditional sense, but it’s not nearly enough to offset the cost of new tax benefits targeted at renewable energy sources ($10-20 billion), relief from the AMT ($40-60 billion per year!), or extending other popular tax breaks that expire in the next couple years ($10-20 billion).
It’s All About the Tax Gap These Days
Meanwhile, the Tax Gap continues to be the focus of congressional tax writers and budgeters. BNA today reports that Senate Budget Chairman Kent Conrad is continuing to look to tax gap proposals as a means of closing the budget deficit. As BNA reports:
“The tax gap–the difference between total taxes assessed and those paid on time–has been estimated at close to $350 billion in 2001. But how much of that gap can be recaptured and how much in extra enforcement efforts would be needed to do so remains unclear. Conrad said he had talked with Finance Committee Chairman Max Baucus (D-Mont.) and they agreed on the need to do something about the tax gap and “offshore” tax schemes, where corporations identify a low-tax country such as the Cayman Islands as a corporate headquarters for tax purposes.”
We have yet to meet an S corporation that has moved to the Cayman Islands, so our principal concern is not with the offshoring of corporate headquarters; but that offshore tax havens, like oil and gas subsidies and Medicare fraud, will prove to be less lucrative to tax collectors than the press releases suggest. Just another reason for S corporations to be prepared.