Tax Bill: Fossil Fuel Provision Would Personally Enrich Republican Lawmakers
When Texas Sen. John Cornyn slipped an obscure tax break for pipeline giants into the GOP tax bill, he wasn't just helping major Republican Party donors, he was also potentially helping 16 of his congressional colleagues. Together those 16 lawmakers — 13 Republicans, three Democrats — own multimillion-dollar stakes in the special investment vehicles that stand to benefit from Cornyn’s amendment. They include three of members of the Texas Congressional delegation: Sen. Ted Cruz and two top Republicans in the U.S. House.
Cornyn’s amendment, which was introduced just hours before the Senate passed the tax bill on Dec. 2, provides a tax deduction for investors in energy-related master limited partnerships (MLPs) — investment entities primarily used by oil and gas pipeline corporations.
Federal lawmakers collectively own between $4.6 million and $10.6 million worth of energy-related MLPs, according to personal financial disclosures reviewed by International Business Times. Thirteen of the 16 lawmakers who own stakes in energy-related MLPs are Republicans. All 13 of those lawmakers voted for the tax bill in their respective chambers.
The filings detail lawmakers’ ownership stakes through 2016 and provide dollar ranges, not specific figures, for the value of the legislators' assets.
Cornyn has defended the tax provision — a spokesperson for his office told the Huffington Post that “Under current law, publicly traded master limited partnerships (MLPS) are taxed as pass-through entities, and this amendment simply preserves that status in the new bill.” But that status would be treated even more favorably under both the House and Senate bills, and the lawmakers who own stakes in these MLPs stand to benefit financially. Profits from MLPs would be given a 23 percent deduction in the Senate bill. In the House version, the tax rate on the income from MLPs would be capped at 25 percent — far below the typical 39.6 percent rate MLP investors currently pay on that income.
“Trump has set the tone for Republican officials, from the White House to the administration to Congress: self-dealing by public officials for personal gain is to be treated as business as usual and, if politically possible, no longer subject to ethics constraints,” Public Citizen’s Craig Holman told IBT after learning of lawmakers’ personal financial interest in the tax provision. “Public officials in the Trump administration and the Republican Congress today have a green light to use their trusted positions to enrich themselves — and they are doing so.”
Congress’s top stakeholders in the MLPs are all Republicans -- they include Michigan Rep. David Trott(up to $4.4 million), New Jersey Rep. Tom MacArthur (up to $2.3 million), Georgia Republican Sen. David Perdue (up to $1.25 million), Texas Rep. Pete Sessions (up to $550,000), Texas Rep. Kenny Marchant (up to $477,000) and Texas Sen. Cruz (up to $300,000). The tax provision could prove particularly lucrative for lawmakers, because their holdings can generate significant annual income — as one example, Cruz in 2016 listed more than $11,000 in earnings from his stake in one fossil fuel MLP.
On the whole, the 16 elected officials who own stakes in the MLPs are far wealthier than the average members of Congress — they have an average 2015 net worth of over $21 million, according to the Center for Responsive Politics. MacArthur, whose net worth is estimated at $64.5 million, was the lone member of the New Jersey congressional delegation, which includes five Republicans, to vote for the tax bill.
Lawmakers collectively have the largest ownership stakes in MLPs operated by Dallas-based Energy Transfer, Houston-based Enterprise Products Partners and Tulsa-based Magellan Midstream Partners. Individuals and political action committees associated with these three partnerships have together given nearly $2.5 million to federal Republican candidates since 2012, according to data compiled by the Center for Responsive Politics. Energy Transfer’s CEO is a top Trump donor and one of the singlelargest donors to outside groups that back the GOP.
A Last-Minute Tax Break For Investors In Fossil Fuel Pipelines
Apache Corporation, a fossil fuel firm, created the first MLP in the early 1980s to accomplish two goals: allow investors (which are partners in the MLP) to access capital markets and avoid corporate taxes. MLPs don’t pay corporate taxes, because technically they aren’t corporations. Income passes through the MLP to its partners, who then pay standard income tax rates on the profits they receive.
The last time Congress took up tax reform in 1986, lawmakers limited what kind of businesses could form MLPs in order to mitigate losses in corporate tax revenue that arose from the new business structure's popularity. The big winners of the new rules were oil and gas companies, which were allowed to continue forming MLPs.
Today the vast majority of MLPs are in the pipeline business, and MLPs are acutely aware their success depends upon a favorable tax status. While investors and partners in corporations are effectively taxed twice — first at the corporate level and then again at the personal level — MLPs are taxed only once, typically at the 39.6 percent top marginal tax rate.
“Our tax treatment depends on our status as a partnership for federal income tax purposes,” Sunoco Logistics Partners L.P., a MLP, stated in a recent SEC filing. “If the Internal Revenue Service ("IRS") treats us as a corporation or we become subject to a material amount of entity level taxation for state tax purposes, it would substantially reduce the amount of cash available for distribution to unitholders.”
Under both the House and Senate version of the Republican tax bill, corporate tax rates would be slashed from 35 percent to 20 percent (although it’s possible that figure could rise slightly during negotiations between the two chambers.) Since investors flock to MLPs to avoid so called "double taxation" — profits taxed once at the corporate level and again at the personal level — MLPs would be less attractive to investors at a 20 percent corporate tax rate than they would be at a 35 percent corporate rate. To ensure MLPs and other “pass-through” entities maintained their allure relative to other investment opportunities, Cornyn provided a fix. That fix could be codified into law next week, when Congress is expected to vote on the final version of the bill.