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Senate passes Alaska gas line tax credits in corporate tax bill
Larry Persily Petroleum News government affairs editor
Although the corporate tax bill moved out of the U.S. Senate on an easy 92-5 vote May 11, the measure — and its 100-plus pages of energy tax credits — likely will face some problems in the House.
The main purpose of the legislation is to resolve a trade dispute with the European Union by repealing an export tax break for U.S. corporations but the bill, as The Wall Street Journal reported, “turned into flypaper for unrelated amendments.”
In addition to such far-ranging provisions as tax credits for gasoline-electric hybrid vehicles, clean-coal technology, ethanol-based gasoline, energy-efficient household appliances and marginal oil wells (under 25 barrels per day), the bill includes tax relief for Oldsmobile dealers that need to convert to another brand. The last Olds rolled off the assembly line April 29.
Senators voted 85-13 to defeat an attempt by Sen. John McCain, R-Ariz., to strip all of the energy provisions from the bill. McCain, known for his vocal opposition to special-interest legislation, called the bill’s tax sections “a Christmas tree of goodies.”
The bill also includes personal tax deductions for mortgage insurance premiums, a lower corporate tax rate for U.S. manufacturers to make up for the loss of the export tax break, tax credits for companies that employ military reservists called to active duty, and a provision blocking proposed Bush administration restrictions on overtime for some white-collar workers. Alaska’s been waiting since November But it was the energy provisions that Alaska has been waiting for since a comprehensive energy bill stalled in the Senate last November. The Senate Finance Committee estimated the cost of the entire energy tax package at $18 billion, of which about 3 percent would go toward encouraging construction of the Alaska gas line.
The corporate income tax credit for the cost of building a gas treatment plant on the North Slope and accelerated depreciation for the pipeline are worth an estimated $500 million in tax savings to project developers. The quicker depreciation schedule would allow companies to write off their pipeline investment in seven years instead of 15 years.
The bill also includes a commodity risk provision, or so-called marginal well credit, to protect North Slope producers if the wellhead value of gas drops below $1.35 per thousand cubic feet. But House leadership and the president have opposed such price floors for Alaska gas in past legislative attempts, and few expect them to accept the Senate’s latest price-protection provision.
The credit would max out at 52 cents per mcf, regardless how low the wellhead value might drop in the future.
“We need these provisions for construction of this pipeline to go forward,” said Sen. Lisa Murkowski, R-Alaska, arguing in a press release for the price-risk protection as the bill moved to the House. Gas line incentives not part of the controversy Other than the commodity price provision, the gas line tax incentives are not controversial, said John Katz, director of Alaska’s Washington, D.C., office. House debate will be led by fiscal conservatives worried about the price tag for the entire bill and many of the corporate tax breaks, Katz said.
“There are some ideological concerns over there,” he said of the House.
There is no timetable for House action on the bill, Katz said, although he does not expect to see any movement before lawmakers break for Memorial Day. The next opportunity would be after Congress returns in early June and before they leave for the Fourth of July.
Not included in the tax bill are two other key provisions pushed by potential gas line developers: federal loan guarantees for debt taken on to pay for billions of dollars of construction, and enabling legislation to speed up permitting and judicial review.
“The key question remains finding a legislative vehicle to carry the authorizing provisions,” Katz said. Because lawmakers see that the energy bill is dead — even Senate Minority Leader Tom Daschle, D-S.D., says it’s true — Congress is looking for other legislation that could be amended to carry the remaining energy provisions.
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