Democratic Rep. Katie Porter represents CA-45, a former Republican stronghold in Orange County. A protégé of Elizabeth Warren, Rep. Porter has earned quite the reputation for using her law school chops to grill corporate moguls and captains of industry during Congressional hearings.
Then she brags about it on Twitter, like this, from March 10:
A Big Oil exec told me I had a “misconception” about a special tax break polluters get that other businesses don’t. So, after explaining the deduction to him, I offered to write it out of the tax code if that what he wants. [sic] Just let me know!
Needless to say, I have a few problems with this.
The target of Rep. Porter’s ire was Mark Murphy, President of Roswell, NM-based Strata Production Company. Not a household name, you say? That’s because Strata employs 16 people and has annual revenues of $2.3 million. That’s million, with an M.
[Pro Tip: 16 employees and $2.3 million in revenue is a “Mom and Pop” operator, not “Big Oil”. I’ve worked for a company of similar size for a quarter-century.]
The “special tax break” is called Intangible Drilling Costs (pdf link), or IDC’s for short. Basically, the non-salvageable cost of drilling oil, gas, or geothermal wells is deductible for tax purposes in the year they are incurred instead of being written off over time. It’s not a tax credit; the issue is timing, how quickly the expense can be amortized. Exciting stuff.
IDC’s are important to small companies who don’t aspire to compete with ExxonMobil, Shell, or BP; independent oil and gas operators often raise money from investors or industry partners to drill every well.
Ironically, IDC’s are less of an issue to “Big Oil” because 1) the benefit applies only to domestic drilling, and 2) Congress has already taken back 30% of the available deduction. So Rep. Porter’s threat, contrary to her boast, is aimed directly at the little guys.
Funny thing about IDC’s: The IDC write-off is zero if you’re not drilling wells. Since the collapse of oil prices last year, the drilling rig count is historically low, below 400 domestic rigs. Chances are Mr. Murphy spent 2020 struggling to meet payroll and keep his company afloat instead of looking for new places to drill.
It’s true: No other industry benefits from IDC treatment. Duh. No other industry drills wells. I’m told the software industry has a comparable rule that allows expensing software development costs that would normally be written off over time. I’m no accountant, but I’d expect that just about any industry you can name — agriculture, banking, defense, insurance, real estate, pharmaceuticals — has special treatment in the tax code to reflect the unique challenges and capital structure of that business.
All that being said, you can love IDC’s or hate them, I don’t care. You have to admit that there’s something particularly obnoxious about an elected representative teeing off on a small businessman who cares enough to testify before Congress — and then bragging about it. Mark Murphy and thousands of others like him keep millions of Americans employed and paying taxes. And those taxes go to pay for the circus we call D.C. and to service the debt our “dedicated public servants” keep ratcheting up.
P.S. — Rep. Porter is a member of the House Natural Resources Committee, which sponsored the hearing where this exchange took place. It speaks volumes that she refers to domestic drillers as “polluters”. The committee, chaired by Raul Grijalva (D-AZ), will be a battleground for upcoming battles over the implementation of the plan to hobble the nation’s oil and gas industry. Stay tuned.