[Congressional Record (Bound Edition), Volume 153 (2007), Part 21]
[Senate]
[Pages 29067-29069]
[From the U.S. 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 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sales taxes was repealed in 1986.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

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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.
  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

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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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