Tax Policy

Pursuant to a congressional request, GAO provided information on the effects of additional tax incentives for the petroleum production industry.

GAO found that: (1) the proposals it considered are expected to have small to modest effects relative to total U.S. petroleum production and consumption; (2) the administration's estimate of the average annual revenue loss for all of the proposed petroleum tax incentives combined is $400 million to $500 million; (3) the Department of Energy (DOE) estimates that future U.S. petroleum production would increase by a total of about 25,000 to 40,000 barrels per day; (4) the proposal for eased treatment of certain intangible drilling costs would cause federal revenue losses of $3 to $6 for each barrel of additional production; (5) there were concerns with the DOE modelling, including possible tendencies to overestimate production effects; (6) provisions applying to all existing production could lead to revenue losses per barrel of additional production that exceeded the price of oil; (7) oil tax incentives could provide other benefits in addition to petroleum production, but there are concerns over the incentives' ability to increase long-term energy security; (8) proposed incentives would reduce effective tax rates on petroleum production, but the marginal effective corporate tax rates for domestic petroleum production are already among the lowest for a major industry; (9) proposed tax incentives would add to the existing favorable treatment of some related petroleum production investments, but other proposals could provide even more preferential treatment; and (10) U.S. producers are making petroleum production investments abroad, due to factors other than taxes.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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