JACK KEMP IS behaving strangely for a tax simplifier. He has agreed to restore to the Kemp- Kasten tax simplification bill the two most elaborate tax preferences of the oil industry -- the famous oil depletion allowance and the less well-known but even more valuable right to "expense" what are known as intangible drilling costs. These two forms of tax forgiveness are crucial to independent oil producers, who use them in drawing from outside investors -- the doctors and dentists of tax-shelter caricature -- the funds to finance exploration.
The right to expense drilling costs -- to deduct them when incurred instead of spreading them over the life of a well -- makes it cheaper to invest. The depletion allowance cuts taxes owed on wells that produce. Together, they shift the odds on oil investment. The same producers who preached the free market when price decontrol was the issue now say it is critical that they keep these special props, particularly in a weak world oil market.
Mr. Kemp, in a statement in the Congressional Record this week, points out that the nation's oil import bill was about $60 billion last year, the domestic "mineral industry is severely depressed" and the independent producers "discover most of the oil in this country." Percentage depletion and the expensing of intangibles are "necessary to encourage domestic energy and mineral supply," he now believes.
These are not idle arguments; they are some of the same arguments that helped put the oil preferences in the tax code in the first place. And Mr. Kemp has every right to give ground to them; it is his bill, after all. But oil always has been the powerful symbol in tax matters, and by yielding in this case, the congressman invites other interest groups to form a line at his door. The National Association of Homebuilders said the other day that its members, too, were hurting and need their subsidies. They will all say that. One can envision a kind of joyous auction in which Congress finally gives back every preference in the code to the interest groups that now enjoy them.
There is a trade-off in simplifying the tax code -- lower rates in return for fewer of the deductions, exemptions and other special provisions that now skew what people pay. Mr. Kemp plainly likes the easy part of this, the lower rates. But he is flinching at the hard part, the wiping away of the preferences. The interesting question is whether President Reagan -- whose own simplification plan is pending -- will do the same.