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Politics : Politics of Energy -- Ignore unavailable to you. Want to Upgrade?

To: Alastair McIntosh who wrote (24871)	1/17/2011 9:22:20 AM
From: Road Walker	1 Recommendation Respond to of 86354

To put these costs in perspective, suppose that Company A has Intangible Drilling Costs of $1,000,000. Suppose that Company A decides to take this expense in year 1 rather that spread the cost over 5 years. What is the cost to the taxpayer if the drilling company has a marginal tax rate of 40% and government borrowing costs 4%. What's likely to happen is that there will be a new well each year and the deduction keeps getting passed forward and never recognized as tax revenue. For extra marks estimate the benefit to the taxpayer if several extra jobs and a producing oil well are created producing addition tax revenues and reducing imported oil. I'm not saying it's a bad thing to subsidize oil drilling. Lets just recognize that the activity realizes very significant tax subsidies. Conclusion As is evident from this discussion, the tax benefits generated by a direct participation in oil and/or natural gas are substantial. The immediate deduction of the intangible drilling costs or IDCs is very significant, and by taking this up front deduction, the risk capital is effectively subsidized by the government by reducing the participant's federal, and possibly state income tax. oilandgasjointventures.com