MILLS: Congress Begins Work to Make Tax Reform & Simplification a Reality

Insider’s ENERGY REPORT:  Texas Petro Index Increase For 9th Consecutive Month

By Alex Mills

AUSTIN, Texas (Texas Insider Report) — President Trump kicked off his campaign to encourage Congress to begin serious discussions regarding tax reform.

U.S. Rep. Kevin Brady (right, R-TX), chairman of the tax-writing House Ways & Means Committee, has been advocating tax reform for more than a year.  The proposed changes are outlined in his Tax Blueprint, which included a white paper “A Better Way: Our Vision for a Confident America” issued on June 24, 2016 five months before Donald Trump was elected President.

Provisions in the Blueprint – designed to lower the tax rates, increase economic activity, and simplify the tax code – are still the cornerstone of tax reform discussions on Capitol Hill.

The Blueprint is divided into individual and corporate tax sections. The individual tax return has been simplified so most taxpayers can fill out their federal income taxes on a postcard.

First, determine taxable income by adding wages and other compensation to half of investment income.  Then subtract specified saving plan contributions and the standard deduction allowed by IRS to determine total taxable income.  (Taxpayers have the option can substitute mortgage interest deduction and charitable contributions in place of the standard deduction.)

Taxpayers also may deduct the child credit, earned income credit and higher education credit from the preliminary taxes owed according to the tax chart.

The new tax rates will be reduced to three (12, 25 and 33%) from the current seven rates.
The corporate tax overhaul has some interesting and controversial provisions.  Reducing the maximum tax rate to 20 percent, reducing tax on dividends and capital gains by 50 percent, making the research-and-development credit permanent, and repealing the alternative minimum tax and the estate tax have immediate appeal.

One of the most controversial provisions is called the “border adjustability” provision.

“Under our current broken tax code, U.S. companies pay a tax when exporting products, but not when they import products,” Brady explains in the Blueprint.

“To avoid paying that tax on exports, U.S. companies move jobs, research, and headquarters overseas.  That way, the products they sell abroad are not subject to U.S. tax and the products they import back to the U.S. are not subject to U.S. tax.

“Under our Buleprint, ‘Made in America’ products will no longer be taxed and imports will be subsidized – setting our manufacturers up for success around the world,” Brady said.

He said under current tax policies,

“U.S. companies are taxed when they sell their product in foreign markets – a tax not imposed on a foreign competitor selling in the same markets.  Our Blueprint levels the playing field, ensuring that competition is based on quality, price, and service – not outdated tax regimes.”

Brady suggested a 20-percent tax rate on imports.

In the petroleum industry, refineries that import crude oil strongly oppose the import tax.  Oil producers, especially many independents, have advocated a tax on imported oil since the 1970’s.  Independents have pointed out the economic and national security benefits of taxing imported oil, but both Republican and Democratic presidents have not implemented such a tax.

Now, policymakers in Washington will have a chance to make tax reform and tax simplification a reality with the Tax Blueprint as a starting point.

Texas Petro Index Increase For 9th Consecutive Month

Stability in crude oil prices in Texas and across the nation has resulted in increased drilling, production, and an increase in the Texas Petro Index (TPI) during the last nine months. A composite index based upon a comprehensive group of upstream economic indicators, the TPI is compiled monthly and authored by economist Karr Ingham.

Since April 2016, the spot price for crude oil at Cushing, OK has been above $40 per barrel. However, there have been issues along the way. OPEC and Hurricane Harvey are two important factors.

“The totality of these events has yet to move crude oil pricing out of the range in which it has been languishing since June 2016, when the monthly average WTI posted price was $45.19 per barrel ($/bbl),” said Ingham.

“From June of last year through August, oil prices in Texas have averaged $45.06/bbl, and the August 2017 average is $46.21/bbl.  This lack of price movement is the principal reason why many indicators of upstream oil and gas activity have leveled off.”

Since the average monthly rig count bottomed out in May 2016 at 182, Texas operators have put another 278 rigs in the field, an increase of more than 150 percent.

“However, growth in the rig count has effectively stalled at this point and the fervor for expansion in the Permian has begun to cool a bit,” he said.

“The weekly rig count in the current recovery actually topped out at 466 in the first week of August, and has been in a state of modest decline since then.”

Ingham said the effects of Hurricane Harvey on the Texas oil and gas industry reflected the dramatic market changes that have occurred since hurricanes Katrina and Rita caused oil and gas prices to spike when they crossed the Gulf of Mexico and rolled ashore in 2005.

“The explosion of onshore crude oil and natural gas production since then has diminished the relative importance of offshore production,” Ingham (right,) said.

“Crude oil markets largely shrugged off Hurricane Harvey as a market event, because the dramatic expansion of oil and gas supplies has insulated U.S. consumers from events that historically have brought about wild swings in product prices, from geopolitical tensions to weather, and everything in between.”

Estimated crude oil production in Texas totaled 106.6 million barrels, 8.5 percent more than in August 2016. With oil prices in August averaging $46.21/bbl, the value of Texas-produced crude oil amounted to nearly $4.93 billion, about 20.9 percent more than in August 2016.

Texas natural gas output amounted to more than 669.4 billion cubic feet, a year-over-year decline of about 3.0 percent. With natural gas prices in August averaging $2.76/Mcf, the value of Texas-produced gas increased 2.6 percent to nearly $1.85 billion.

ABOUT the TPI: The Texas Petro Index is a service of the Texas Alliance of Energy Producers, the nation’s largest state association of independent oil and gas producers.For additional information, please contact:

  • Karr Ingham at 806-373-4814 (office) or 806-433-5309 (mobile), or karr@inghamecon.com
  • Alex Mills, president of the Texas Alliance of Energy Producers, at 800-299-2998 (office – toll free) or 940-781-0350 (mobile), or alexm@texasalliance.org.

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Alex Mills is President of the Texas Alliance of Energy Producers.  The opinions expressed are solely those of the author. The Texas Alliance of Energy Producers is an oil & gas trade association that represents some 3,000 members. It has offices in Austin, Houston, Fort Worth & Wichita Falls.

 

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