Depletion is the exhaustion of natural resources, such as oil wells.
Big Oil Corps get a US federal income tax deduction for their depletion.
Many
years ago, the US Congress passed tax legislation that allowed Big Oil
Corps to compute their depletion federal income tax deduction in two
ways, either by Cost Depletion or by Percentage Depletion.
Cost Depletion is similar to computing Depreciation under the units of production method.
Percentage Depletion is computed as a percentage of the gross income from the oil well in each year.
And
in a bizarre twist, Congress also let Big Oil Corps deduct percentage
depletion in a year in which it is higher than cost depletion. However,
when the higher percentage depletion is claimed in a given year, the
tax basis of the oil well doesn’t get reduced by the percentage
depletion actually claimed, but rather by the lower Cost Depletion that
wasn’t claimed in that year.
Therefore, Big Oil Corps are allowed
to deduct, in total over the life of the well, substantially more than
the cost of the oil well.
Obviously this is a corporate tax
loophole, and a pretty abusive one. But yet, the US Congress has never
had the courage to close this Big Oil corporate tax loophole, because so
many in Congress are in the pockets of Big Oil, and also many of them
are also scared to death of Big Oil, because of its awesome power.
My proposal here is to kill Percentage Depletion for Big Oil Corps, and because it is so egregious, it should be done retroactively.
The money raised here will all be used to reduce the US Debt.
There
will be significantly positive CBO scoring to the US Government from
this proposal, for the next 10 years and for many years thereafter.
