[Congressional Record Volume 153, Number 168 (Thursday, November 1, 2007)]
[Senate]
[Pages S13649-S13651]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
TAX FAIRNESS
Mr. ALEXANDER. Mr. President, I wish to say a word about tax
fairness. Last week, I joined Senator Hutchison, who has been the
leader on this issue, Senator Cornyn, and Senator Corker from my home
State of Tennessee in introducing S. 2233. Our goal with that
legislation is to make the State and local sales tax deduction
permanent.
As a former Governor, I know States and cities have many different
ways to raise revenues to support the services they provide. States
usually provide about half the funding for elementary and secondary
education. They are the principal funder of community colleges and
universities. They pay for a good part of the roads and all the
prisons. So most States have pretty big bills to pay, and they have a
variety of taxes to raise the money to pay for those bills. Some States
levy an income tax. Some use a sales tax. Some use a combination of the
two. Some use some other taxes.
In Tennessee, we have had a pretty good debate about this issue, and
we have decided we don't want an income tax. I looked at the options
myself when I was Governor in the mid-1980s and considered an income
tax for Tennessee but decided it would be the
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wrong thing to do, to put a tax on work. We have done pretty well with
low taxes and without an income tax.
Americans who pay State and local income taxes are able to claim a
deduction for those amounts on their Federal income tax, and before
1986, taxpayers also had the ability to claim a deduction on their
State and local sales taxes. But this deduction for State and local
sales taxes was repealed in 1986.
Congress temporarily reinstated that State and local sales tax
deduction for 2004 and 2005 and then extended it again for 2006 and
2007. I was a part of the effort in this Chamber to do that. It was a
bipartisan effort. So taxpayers today who itemize on their Federal
income tax returns can deduct either State and local sales taxes or
State income taxes. Yet, unless Congress takes further action, this
sales tax deduction will expire at the end of December of this year.
This is not about cutting taxes; this is about tax fairness. It is
not fair for States without income taxes to subsidize tax deductions
for States with income taxes. Why is it our business in Washington, DC,
to prefer an income tax in the various States?
Nine States, including Tennessee, do not impose a State income tax.
They are Alaska, Florida, New Hampshire, Nevada, South Dakota,
Tennessee, Texas, Washington, and Wyoming--States from across the
country, some big States, some middle-size States, some of our smallest
States. These States shouldn't be treated differently. If Congress
doesn't act, they will be by the end of December 2007.
I am here today to urge this body to make permanent the deduction for
State and local sales tax. At the very least, we need to temporarily
extend the deduction, as we have done in the last two Congresses,
before it expires on December 31 so that taxpayers in those nine States
are not forced to pay an unfair share of taxes.
We are talking about large amounts of money. Nearly 600,000
Tennesseans itemized their taxes and claimed the State and local sales
tax deduction last year. This benefit put an average of $400 in the
pockets of hard-working Tennesseans. Therefore, losing this deduction
would cost Tennesseans nearly a quarter of a billion dollars right out
of their pockets each year.
Extending the State and local sales tax deduction is the fair thing
to do, and it is the right thing to do. I urge my colleagues to join
Senator Hutchison, Senator Cornyn, Senator Corker, and me in enacting
S. 2233 before the end of the year.
I yield the floor.
The ACTING PRESIDENT pro tempore. The Senator from Tennessee.
Mr. CORKER. Mr. President, I also rise today to speak regarding S.
2233. I am always honored to be in the presence of our senior Senator
from Tennessee. I am honored to follow him today talking about the same
topic.
One of the great points about our country is that we are set up in a
manner that we allow States to choose how they govern on issues
relating to the way they tax their citizens. As Senator Alexander just
stated, in the State of Tennessee, we have decided, after a tremendous
amount of debate over decades, that we like being taxed through a sales
tax.
As you know and as was just stated, Americans all across the country
who are in States where they have an income tax or payroll tax are able
to deduct that from their Federal income taxes. Again, in order to
continue to support the fairness of the way we treat States, certainly
those who choose to use a sales tax to raise revenues for roads and
schools and want to leave it in the hands of their citizens to decide
how much they pay in income tax, those States ought to be allowed to
deduct those taxes from their Federal income taxes.
This is an issue of fairness. This absolutely is an issue of
fairness. I hope today--we have introduced a bill, as Senator Alexander
stated--to convince other Senators that this is an issue of fairness
and that they should support this bill which will permanently allow the
nine States that today use a sales tax as a way of raising revenues for
their States to be able to deduct those taxes.
As was mentioned, 11.2 million Americans across our country took a
sales tax deduction last year. Mr. President, 600,000 Tennesseans took
that deduction, and it saves Tennesseans about $400 a year.
Since much has already been said, I close my comments again urging
Senators on both sides of the aisle to support this bill which
indicates fairness for all Americans.
The ACTING PRESIDENT pro tempore. The Senator from Oklahoma.
Mr. INHOFE. Mr. President, the leadership targeted November 16 for
adjournment of this session of Congress, although I think we all
believe that is a little overly optimistic. Regardless, I am concerned
that as of yet, we have not considered an annual tax-extender package
containing an extension of a number of very beneficial tax provisions.
I am pleased to join with my colleagues to discuss the need to address
many beneficial tax-extender provisions.
I wish to highlight two tax provisions of particular interest to me
that Congress has annually extended, one ever since 1991 and one since
1993, and they particularly benefit oil and gas development from
marginal wells and depreciation. Specifically, these two tax provisions
are the suspension of the net income limitation on percentage depletion
allowance for marginal oil and gas proceedings and accelerated
depreciation for assets in Indian Country.
The United States has approximately 457,000 marginal wells. That is a
huge number. A marginal well is one that produces 15 barrels or less a
day. A lot of these wells are located in my State of Oklahoma. They
collectively produce about 1.2 million barrels per day of annual
production. These wells account for nearly 20 percent of the total oil
production in the United States, about the amount we are importing from
Saudi Arabia.
People do not understand the significance of marginal wells. They
cost a lot more to produce--marginal wells. These are shallow wells.
They are not profitable like the deep wells in some parts of the
country. But when you add them all up, it means this production equals
as much as we are currently importing from Saudi Arabia. So it is very
significant.
In my State of Oklahoma, it is the small independents--basically the
mom-and-pop operators--that are producing the majority of oil and
natural gas, with 85 percent of Oklahoma's oil coming from marginal
wells--again, that is 15 barrels or less a day. Because marginal wells
supply such a significant amount of our oil and gas, it is vital we
keep them in operation. However, according to the Department of Energy,
between 1994 and 2003 the United States lost 110 million barrels of
crude oil due to the plugging of marginal wells.
A lot of people not familiar with the industry think you can always
unplug a well. You can't unplug a well. Once you plug it, it is gone.
Thus, when we lose marginal well production, we become more dependent
upon foreign sources of energy and more dependent at a time when I
think almost all of us in here agree that U.S. policy should encourage
reliance upon domestic sources. Furthermore, we lose domestic jobs to
foreign nations.
If the current suspension of the net income limitation on percentage
depletion allowance expires, U.S. production from our marginal wells
would be severely hampered. Percentage depletion is a form of cost
recovery for mineral and leasehold acquisition costs. The percentage
depletion rate for oil and gas is 15 percent of the taxpayer's gross
income from a producing property. It used to be closer to 30 percent.
It should be higher than 15 percent, but that is where it is today.
Only independent producers and royalty owners are able to utilize
percentage depletion.
Under the net income limitation, percentage depletion is limited to
100 percent of the net income from an individual producing property. In
the case of marginal wells, where total deductions and expenses often
exceed gross income, this limitation discourages producers from
investing in the continued production for marginal wells with high
operating costs and low production yields.
Without the full utilization of the percentage depletion allowance,
the net income limitation actually encourages producers to plug and
abandon production of marginal wells. Then, of course, as I said
before, you have lost them forever.
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Congress has, on a temporary basis, suspended the net income
limitation since 1997. The current suspension expires at the end of
this year. The extension of the suspension of the net income limitation
will allow independents the necessary capital to continue to produce
from these existing marginal wells, which is critical to the Nation's
overall energy security.
Now, additionally, Congress made a special economic incentive
available to benefit Indian Country under the Omnibus Budget
Reconciliation Act of 1993. It provides for special accelerated
depreciation for new and used assets acquired after December of 1993 on
Indian reservations and former Indian reservations in Oklahoma and
elsewhere. This depreciation incentive provides an approximately 40
percent shorter recovery period for most commercial property. This
accelerated depreciation schedule has been successful in encouraging
capital-intensive businesses to locate and expand in Indian Country in
Oklahoma and throughout the Nation.
Both of these important provisions expire at the end of this year,
and it is crucial that Congress act this year to extend each one.
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