CONGRESSIONAL RECORD -- SENATE

May 8, 1969

Page 11814

S. 2103 -- INTRODUCTION OF A BILL TO ELIMINATE THE DEPLETION ALLOWANCE FOR OVERSEAS OIL AND GAS WELLS

Mr. MUSKIE. Mr. President, on behalf of myself and 13 other Members, I introduce, for appropriate reference, a bill (S. 2103) to amend the Internal Revenue Code of 1954 to deny the use of percentage depletion for oil and gas wells located outside of the United States. The present law exempts from taxation 27½ percent of gross income for oil- and gas-producing properties, up to 50 percent of net income.

The amendment would apply to taxable years beginning after the date of enactment of this act.

Percentage depletion was first adopted in the law in 1926 as a substitute for depletion based on "discovery value." Discovery value depletion has been in effect since 1918 as an incentive to find new oil supplies that we needed in World War I. This provision allowed a depletion deduction based on the value of oil and gas in the ground at the time of discovery. This proved difficult to administer because of the endless controversies between the oil companies and the Government over the value of the gas and oil in the ground. To avoid these controversies, and to simplify administration, Congress, in 1926, adopted the depletion allowance as we now know it.

In 1959, after 2 years of attempting to operate a voluntary oil import control program, President Eisenhower enacted the mandatory oil import quota program. That program prohibits the shipment of foreign oil into the United States, unless a special quota for the oil has been granted by the U.S. Department of the Interior. The total amount of oil allowed to enter the United States is approximately 761,000 barrels a day, representing 12.2 percent of the projected U.S. domestic production.

It is ironic that we are allowing a 27½ percent tax exemption for the exploration and production of oil in foreign countries, while at the same time we have regulations that prohibit the importation of foreign oil into the United States.

The amendment we are offering today would restrict the depletion allowance to domestic exploration, which is the basis on which it was originally established. We believe it can contribute to the development of a more rational national petroleum policy.

Mr. President, I ask unanimous consent that the text of the bill be printed at this point in the RECORD.

The PRESIDING OFFICER. The bill will be received and appropriately referred; and, without objection, the bill will be printed in the RECORD.

The bill (S. 2103) to amend the Internal Revenue Code of 1954 to deny the use of percentage depletion for oil and gas wells located outside the United States, introduced by Mr. MUSKIE (for himself and other Senators), was received, read twice by its title, referred to the Committee on Finance, and ordered to be printed in the RECORD, as follows:

S. 2103

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That (a) section 613(b) (1) of the Internal Revenue Code of 1954 (relating to percentage depletion rate for oil and gas wells) is amended by inserting "in the United States" after "wells".

(b) The amendment made by subsection (a) shall apply to taxable years beginning after the date of the enactment of this Act.