Keep Some Oil, Gas Subsidies, Official Urges

Energy Secretary John S. Herrington told a Senate panel today that national security requires retaining some subsidies for the oil and gas industry in President Reagan’s new tax plan.

Herrington was sharply questioned about the Reagan Administration’s motives by Sen. Bill Bradley (D-N.J.), author of a competing plan that would tax the oil industry more heavily.

Herrington initially told the Senate Finance subcommittee on energy, “We believe that market forces will continue to determine the most efficient use of our oil and natural gas resources, and provide consumers with the benefits of increased competition and lower prices.”

“You say the market should allocate resources,” Bradley snapped. “I agree with that. But it is then inconsistent for you to say we should retain subsidies for oil and gas.”

Reagan’s plan, while deleting some current tax breaks for oil, would keep the annual write-off for intangible drilling costs--money spent on labor, fuel and materials at the wellhead. Reagan retains depletion allowances for the 400,000 “stripper” wells that produce an average of three barrels per day.

Up to 15% of Gross

Big oil companies lost the depletion allowance a decade ago, but independent producers are entitled to deduct up to 15% of their gross income--up to 50% of their taxable income--from their wells.

Herrington said, “We have definitely increased taxes on the oil industry” with the President’s plan.

“We do need to keep some incentives,” he said. “If you took away depletion for the strippers, they would close down. I don’t think anybody wants to do that. The overriding concern is national security.”

Bradley: “Three barrels a day is essential to national security?”

Herrington: “Well, it’s 10% of our national production.”

Bradley: “Certainly national security is an argument you can make, but I think you may have another reason” for retaining some oil write-offs. “However, I won’t go into that just now,” he said, laughing.