Charlie Rangel Tries a New Tax Hike

January 9, 2009 | Roger McEowen

Last fall, House Ways and Means Committee Chairman Charles Rangel (D. N.Y.) proposed a big tax hike in his "Mother of all Tax Bills" legislation.  The measure had absolutely zero bipartisan support, didn't get enacted, and managed to so badly gum up the legislative process that the Congress couldn't get necessary tax legislation passed until December.  The AMT "patch" didn't get signed until just before Christmas, and the Technical Corrections Bill wasn't signed until after Christmas.  The lateness of those bills has caused administrative headaches for the IRS and made a nightmare of a filing season for many this spring.

Now good 'ol Charlie and the gang is back at it again.  This time he and 36 Democrat co-sponsors want to pour more taxpayer dollars into "renewable" energy production (note - there is no such thing as "renewable energy" unless the Second Law of Thermodynamics is repealed) to the tune of $18 billion, and pay for it with a tax hike on the oil and gas industry, and by jiggering the corporate estimated tax payment rules.  Specifically, the bill would repeal I.R.C. Sec. 199, the domestic production deduction, for the oil and gas industry.  So, instead of repealing the complicated deduction for all taxpayers and lowering rates across the board, Rangel has chosen to play politics again, with no bi-partisan support.  The Administration immediately told good 'ol Charlie that his bill would get vetoed, noting that the bill, "would use the tax code to target tax increases on a specific industry in a way that will lead to higher energy costs to U.S. consumers and businesses."  Unfortunately, the Administration should have taken the position that it would be better for the economy to repeal the domestic production deduction across the board and cut rates.  We'll see what happens.  The bill number is H.R. 5351. 

Update:  On February 27, the House approved H.R. 5351 by a 236-182 vote.  That's not a wide enough margin to be able to over-ride a Presidential veto.  Only 17 Republicans voted for the bill (none from Iowa).  The bill extends the taxpayer subsidization of the "renewable" energy industry by extending the the renewable energy tax credit for three years at a cost of $6.57 billion over 10 years, the solar energy and fuel cell investment tax credit ($621 million), adds $2 billion for clean renewable energy bonds, and adds a restructuring of incentives for the New York Liberty Zone at a cost of $1.83 billion.  The bill also provides tax incentives for persons who ride a bicycle to work.  To pay for the subsidies, the bill increases taxes on oil and gas companies by eliminating the domestic production deduction, denies the credit for renewable diesel co-produced with petroleum products, and modifies the limitation on automobile depreciation. 

Interestingly, the denial of the domestic production deduction to oil and gas companies would likely not apply to Citgo Petroleum Corp., a Venezuelan state-controlled company, because the firm is not a major integrated oil company (as defined by the provision in the bill which denies the deduction).  So, Citgo can still claim the deduction and the overall effect of the provision will be to increase the U.S.A.'s dependence on foreign oil by making domestic production more costly. 

The bill now moves to the Senate, where its fate remains uncertain.  It will take 60 Senate votes to overcome a filibuster on the bill.

The White House has promised to veto the bill because of the tax hike on the domestic production of oil and gas at a time when we are trying to utilize less foreign oil, and the provision for clean energy bonds.