Reagan administration officials are considering going tougher on the oil and gas industry in their rewritten tax-simplification plan than earlier reports had suggested they would, sources said yesterday.
The compromise under review still would be kinder to oil and gas producers than the Treasury Department's November tax plan, which called for the virtual abolition of two tax breaks the industry considers vital.
But the write-off periods for drilling costs and depletion would be longer than Treasury Secretary James A. Baker III had first wanted and considerably less generous than current law.
Details of the provision being considered by the White House were not clear, and sources emphasized that no final decisions have been made. But the apparent equivocation within the administration over oil tax breaks comes as members of Congress -- particularly Democrats -- are growing increasingly nervous that too many givebacks in the Reagan plan will torpedo tax simplification entirely.
House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) said in a speech yesterday that "the gap between the first Treasury package and the Reagan plan has set off some alarms around Washington as to the president's commitment to real reform. Every inch he backs away is an inch of negotiating room lost by Congress."
"If perception in politics is all, the clear perception at the moment is that the administration has fallen prey to certain special interests -- like the oil, gas and real estate lobbies, among others," Rostenkowski told the American Iron and Steel Institute in New York.
Oil and gas have assumed a symbolic importance in the tax-revision debate, as advocates of simplification have said the fate of oil and gas breaks would be a "litmus test" of whether the administration or Congress could muster the political will to gouge special interests in the cause of lower rates.
Oil-and-gas-producing groups had lobbied the administration heavily to overturn the proposals in the Treasury's original plan. Those proposals would have required oil and gas producers to write off drilling costs other than the purchase of physical assets over the life of the well rather than in the first year (currently, individuals can write off 100 percent of those costs in the first year; corporations can deduct 80 percent).
The plan also would have ended so-called percentage depletion, the deduction of a flat percentage of gross income up to 15 percent, and required deductions to be stretched out over the life of the well.
Six producer groups from different parts of the country met with Baker on separate occasions, and one group, led by Sen. Don Nickles (R-Okla.) and Rep. Mickey Edwards (R-Okla.) also met with Reagan.
After the plan was announced, Baker moved to Treasury and its former secretary, Donald T. Regan, took Baker's job of White House chief of staff. Associates say Baker, a Texan, felt the original proposal was too harsh on the oil and gas industry. The changes he was believed to have suggested would permit intangible drilling costs to be written off in two years and owners of small wells to continue to take percentage depletion.
Sources suggested that one possibility for an intermediate compromise would be to permit the write-off of drilling costs and depletion over some in-between period such as four or five years.