Several Energy Challenges Emerge for Oil & Gas Industry as Congress Advances Infrastructure Package and Begins Work on Budget Reconciliation Package
On August 10th, the U.S. Senate voted 69-30 to pass the bipartisan infrastructure bill with 19 Republicans joining all Democrats and Independents to move the measure out of the Senate. The approximately $1.2 trillion bipartisan infrastructure package includes $550 billion in new spending on roads, bridges, transit, ports, broadband and water infrastructure.
Now that the $550 billion infrastructure package is approved, the bill moves to the U.S. House, where Democratic moderates have pressured Speaker Nancy Pelosi (D-CA) to take the legislation up immediately. But she said the House would only move on the bipartisan infrastructure bill once the Senate passes a FY 2022 Budget Reconciliation legislative package. Without the reconciliation package passing first, the Speaker will be hard pressed to gather enough yes votes (the House Democrat majority is three seats) from either the progressive wing of her party or the Republican side of the aisle, which would kill the Senate passed infrastructure bill.
U.S. Senate Democrats Release Budget Resolution for $3.5 Trillion Reconciliation Package - The Senate Democrats passed their $3.5 trillion budget blueprint – technically known as the budget resolution — on August 11th, the day after final passage of the bipartisan $550 billion infrastructure package. Expected to be in the legislation that implement the resolution are programs that would expand federally backed social and healthcare programs, address climate change, extend middle class tax cuts, and roughly pay for half of the package by raising taxes on the wealthy and corporations. Many of these provisions were previewed in President Biden’s American Jobs Plan and American Families Plan.
The text of the budget resolution includes instructions to Senate committees to draft legislation, consistent with the 3.5 trillion annual spending level, that will expand programs covering health, energy, the environment, agriculture, paid family leave, extend the child tax credit, as well as expand Medicare benefits to include dental, vision and hearing and other federal programs. On the tax side, it would expand the state and local tax deduction (SALT), extend middle class tax cuts, all to be partially paid for by various tax increases on carbon, corporations, and those making over $400,000 per year.
The blueprint only vaguely references corporate tax reform as a funding source. There has been no public discussion of eliminating critical oil and gas tax provisions as part of the “pay fors” for the budget. However, President Biden’s Budget proposal repeals these oil and gas tax provisions. KIOGA assumes that they will likely be included in the budget resolution and our advocacy strategy is premised on a fight to ensure they are not included in the FY 2022 Budget Reconciliation legislation that will be crafted as a result of passage of the budget blueprint.
U.S. House Takes Action on the Budget and Infrastructure Measures - On August 27th, the U.S. House passed, by a party-line vote of 220-212, a multi-section procedural measure which includes the adoption of the Senate-passed FY 2022 budget resolution or “blueprint” and outlines a date certain for voting on the Senate-passed infrastructure bill.
With the House’s adoption of the FY 2022 budget resolution by both chambers, the budget reconciliation process begins. This process will allow congressional Democrats to pass a ten year, $3.5 trillion annual expansive social spending and tax package aimed at implementing the President Biden’s budget proposal.
The FY 2022 budget resolution directs 13 House and Senate committees to write and markup their legislative components of the reconciliation package by September 15th.
To achieve this, each committee gets an instruction that they use to develop legislative language that will result in spending and/or revenue raised to achieve the $3.5 trillion annual spending target.
Once the multiple bills are marked up and passed by the committees, the House Budget Committee will then bundle them together into a single, mammoth bill prior to a vote by the House, which is likely to occur during the week of September 20th.
The U.S. House Ways and Means Committee – the tax writing committee that would consider elimination of percentage depletion and IDC – is scheduled to meet September 9th and 10th, and then again on September 13th and 14th, to review and markup its contribution to the reconciliation package.
In the Senate, 12 Senate committees are also tasked by the FY 2022 budget resolution with writing their parts of the reconciliation package by September 15th.
This is expected to be followed by debate and an amendments process to the Senate bill prior to passage, with only a simple majority being required.
Given the tight timeframes, it is expected Senate Democrats will be work with their House Democratic counterparts behind-the-scenes to come to agreement on various policy and spending items.
The U.S. House will consider the $1.2 trillion Senate-passed Infrastructure bill no later than September 27th.
In order for the U.S. House to realistically pass the Senate-passed Infrastructure bill by September 27th, both the House and Senate will need to have made significant progress on the budget reconciliation package prior to that date. So, there is skepticism at this stage those dates will be fully met, though many forces – not the least of which are the Moderate Democrats – are expected to keep the pressure on toward meeting that date.
The bottom line: the process, the dates, and efforts at consensus across the chambers’ regarding reconciliation is very fluid. KIOGA continues to track and engage when necessary.
House Passes Major Spending Bills - The U.S. House of Representatives passed a massive appropriations package in early August containing 7 of the 12 annual appropriations bills, including the Energy-Water (E&W) and Interior-EPA measures. The $617 billion package passed on a 219-208 party line vote. The bill included $43.4 billion for Interior Department and EPA, including a 23% increase for the Environmental Protection Agency (EPA), with much of it aimed at delivering on the Biden Administration’s commitment to address climate change.
Despite the House passage of 9 annual appropriations bills before departing for the August recess, it appears likely that Congress will be forced to turn to a temporary continuing resolution (CR) — legislation to fund the government at last year’s levels — to avoid a government shutdown on October 1st (the start of the new fiscal year), while the Senate completes its appropriations work and the two chambers’ craft new appropriations funding for FY 2022.
Biden’s Budget Proposal Repeals Industry Tax Provisions - President Biden issued his first full budget proposal on June 4th, a 1,700 page plan detailing a dramatic increase in the size and scope of the federal government with more than $6 trillion in spending over the coming fiscal year. Vast new spending would be paired with significant tax increases on corporations and the wealthy. The budget includes the same changes to oil and gas industry tax provisions discussed in the U.S. Senate Finance Committee in late May. Among the provisions proposed to be repealed are percentage depletion for oil and gas wells and expensing of intangible drilling costs.
Like most presidential budgets, the documents will be largely aspirational. Congress controls the government’s purse strings, and with Republicans almost uniformly opposed to most of Biden’s spending and all of his tax increases, he and allied Democrats face difficulty enacting any of it into law. Lawmakers from both sides have made clear they’re unlikely to adopt Biden’s proposals in full.
KIOGA Takes Concerns Directly to Congress
KIOGA continues to be engaged in addressing energy policy challenges. KIOGA has been engaged by providing input on critical oil and gas tax provisions, energy policy, oil and gas industry methane emission issues, Endangered Species Act concerns, and more. In addition to the Kansas Congressional Delegation, KIOGA has communicated with 17 federal policymakers (both Democrat and Republican) this year.
What Can We Expect from Congress the Rest of 2021?
As of this writing, there does not appear to be broad-based support for a tax on methane or a domestic carbon tax via the major budget bill slated for Senate action this fall. But, that has not stopped advocates for a methane tax or carbon tax and those who want to eliminate critical oil and gas tax provisions like percentage depletion deduction and expensing intangible drilling costs (IDCs) from continuing to push for inclusion in budget legislation. Senator Joe Manchin (D-WV) is a key policymaker. Manchin is chair of the U.S. Energy Committee and is absolutely critical for many of our issues.
As of now, Senator Manchin is siding with Republican allies to retain critical oil and gas tax provisions over the Democrat’s agenda to “stick it to the oil and gas industry”. Over the coming weeks and months, both sides will continue to push their priorities for what should and should not be included in the Reconciliation bill.
KIOGA President Edward Cross met face-to-face U.S. Senator Joe Manchin (D-WV) twice this year and engaged Senator Manchin in a Zoom meeting as well. Cross explained the importance of retaining critical oil and gas tax provisions like percentage depletion and IDCs. Cross also met with U.S. Senators John Barrasso (R-WY), Todd Young (R-IN), and Mark Warner (D-VA) from the Senate Finance Committee and U.S. Representatives Kevin Brady (R-TX) and Ron Estes (R-KS) from the U.S. House Ways & Means Committee emphasizing that the oil and gas industry does not receive government subsidies, only standard tax deductions for business operations.
Cross followed up the face-to-face meetings with written correspondence to the U.S. Senate Finance Committee, U.S. Senate Energy Committee, U.S. House Ways & means Committee, and the Joint Committee on Taxation. KIOGA’s correspondence stated our opposition to proposed changes to the Internal Revenue Code that would eliminate critical oil and gas tax provisions. The correspondence encouraged the committees to:
. . .avoid using the tax code as a weapon to discriminate against any particular economic sector. The oil and natural gas industry should not be prevented from recovering costs that other industries are eligible to receive simply because they operate in a different economic sector. The U.S. tax code allows industries across the manufacturing sector to recover costs related to job creation and other operational investments. These common tax mechanisms allow these companies to create jobs, invest in our communities, and deliver the energy that working families rely on every day.
As tax discussions continue, percentage depletion remains a prime target. We will have to fight to justify percentage depletion, which is arguably the most important tax provision we have. The relationships KIOGA has built over the last 10+ with several key Democrat and Republican federal policymakers puts us in a unique position to educate federal policymakers.
KIOGA has prepared for these battles and is fully engaged. Face-to-face meetings are crucial to keep our interests protected. We are assisting a number of U.S. Senate and House members with credible information to defend against efforts to eliminate critical oil and gas tax provisions, address Endangered Species Act abuses, impose emissions regulations, and more