A new Library of Congress study shows that depsite the recent cutback in the oil depletion allowance, petroleum companies still are getting enormous tax breaks - often in excess of the taxes they actually owe.
The document shows that because of existing tax writeoffs, the maximum tax rate paid on oil and gas drilling operations amounts to 17.7 per cent - about half that typically paid by firms in most other industries.
In fact, the study said, these tax breaks are so sizable that the writeoffs the oil companies can claim sometimes exceed their tax bills by as much as 3 per cent - effectively amounting to a payment from the Treasury.
Sen. Edward M. Kennedy (D-Mass.), who commissioned the study and made it public yesterday, said the figures show that despite the recent reduction in oil-industry breaks, companies are receiving "huge welfare payments."
Kennedy was the leader of a 1975 effort that successfully trimmed back the oil-depletion allowance. However, in the face of heavy lobbying, the tax break was repealed only for the largest oil producers.
It was retained in full for the so-called "independent" oil companies - those whose production does not exceed 1,600 barrels a day. Also left intact was another break - the deduction of intangible drilling costs.
The Library of Congress study showed that allowing the oil companies to deduct intangible costs immediately has the effect of reducing their effective tax rates to an average 20.5 per cent - half the 48 per cent statutory rate.
When the companies take advantage of the 10 per cent investment tax credit, that rate becomes 17.2 per cent, the study shows. And for those still qualifying for the depletion allowance, the effective rate is minus 3 per cent.
The Congressional Budget Office estimates the tax breaks for the oil industry cost the Treasury more than $2 billion a year - $1.31 billion for the depletion allowance and $715 million for the drilling-cost deduction.
The tax rates in the study were compiled using a computer model, and do not represent a survey of actual tax returns filed by the companies. Library of Congress estimates in the past have been refuted by some economists.
Kennedy made the study public as part of a call for a further closing of oil and gas tax breaks in the energy bill now under consideration and in the tax-revision package being drafted by the President.
Although Carter so far has not proposed any sizable cutbacks in oil-industry breaks, Kennedy contended Congress should "end these inequities. It is long past time the oil and gas industry paid its fair share of taxes," he said.