I have proudly served in the Utah State Legislature for ten years, and one of my greatest priorities has always been encouraging job creation in our state through common sense policies. The energy sector generates abundant opportunity in Utah, which is why we have worked hard to incentivize energy production, reform permitting, and unleash investment in the Beehive State. Unfortunately, a Biden-era tax policy is hampering progress on this critical front. The Promoting Domestic Energy Production Act would change that, helping bring good paying jobs to our state while decreasing America’s reliance on foreign energy.
While there are lots of ways federal tax policy could be improved to better incentivize energy investment, one area stands out. America’s independent oil and gas producers are currently subject to punitive tax treatment. Despite producing the majority of America’s oil and gas output, our current tax code is making it harder for these producers to invest in jobs and unlock energy production.
This unfair burden placed on independent oil and gas producers goes back to the Biden administration. The Inflation Reduction Act created a tax penalty on America’s independent producers which limited their ability to immediately deduct Intangible Drilling Costs (IDCs). Unlike the name suggests, these costs capture ordinary business expenses that are necessary for the exploration, development, and production of new wells. Just like manufacturing costs for other capital-intensive industries.
Perhaps the most important thing to know about IDCs is what they go to—most IDCs represent the wages paid to workers and similar labor-related expenses. The paychecks paid to roughnecks and drillers in Utah oil and gas fields are considered IDCs. Removing immediate deductions for these expenses makes it harder for producers to create more jobs, drill new wells, and produce more American-made oil and natural gas.
Jobs are a large part of what IDCs pay for, but they’re not the only thing. All told, IDCs make up as much as 80% of the cost of drilling a new well. They are essential to American producers’ ability to unlock new sources of energy here in Utah and around the country.
What made these Biden-era changes to the federal tax policy so unfair is that they singled out independent oil and gas producers. Other industries that rely on investing large amounts of capital still benefit from immediate cost recovery. And it makes sense—these kinds of businesses need access to their capital right away to reinvest. What doesn’t make sense is that America’s independent energy producers have been penalized and restricted.
Right now, our Senate delegation in Washington has an opportunity to bring good-paying jobs to our state while decreasing our nation’s reliance on foreign energy. The Promoting Domestic Energy Production Act (S. 224) is an essential part of the solution, and I’m proud that our own Senator Mike Lee (R-UT) is co-sponsoring this bill. I urge our senators to fix this punitive tax policy against Utah and America’s energy producers in the Senate’s reconciliation package. By doing so, they can form a united front fighting for jobs, domestic oil and gas creation, and American energy security.
Derrin Owens represents District 27 in the Utah Senate.
