Two of the principal sponsors of tax simplification, Rep. Jack Kemp (R-N.Y.) and Sen. Robert W. Kasten Jr. (R-Wis.), have revised their plan and decided to retain two major tax breaks for the oil industry.
The provisions -- fast write-offs for drilling costs and the depletion allowance, which allows independent producers to deduct a flat percentage of gross income -- were slated for elimination in all three major announced tax simplification plans.
A Kemp aide said the change, made when the new version of the bill was reintroduced Thursday, was intended to account for the greater risk involved in oil and gas exploration and to ensure that small producers have enough cash flow to survive.
The Democratic tax overhaul proposal, sponsored by Rep. Richard A. Gephardt (D-Mo.) and Sen. Bill Bradley (D-N.J.), calls for dropping both breaks. So does the first version of the Treasury Department's tax-simplification proposal.
The energy industry, the Treasury plan says, "is currently favored over other business activities through the tax system in two unique ways . . . . The proposed reforms would be beneficial in the long run because the capital and labor released from the energy and minerals sector as a result of a more neutral tax policy would be employed more productively in other industries."
Oil and gas interests have lobbied President Reagan and Treasury Secretary James A. Baker III to retain the two provisions. Speculation in the industry is that the energy sector will be treated more kindly in the new version, which is to be released in mid-May. Baker, oil lobbyists point out, is from Texas.