How Smart Tax Policy for IDCs Strengthens America’s Economy 

May 27, 2025

American energy is the American economy. The oil and natural gas industry contributes billions of dollars annually through taxes, royalties, and fees — supporting everything from public schools and roads to environmental programs and emergency services. 

Sustaining this level of economic impact is dependent on the implementation of smart, durable policy reforms. This includes fair and competitive tax policy like reinstating the immediate expensing of intangible drilling costs (IDCs) that enable energy companies to continue investing in new wells, creating jobs, and delivering affordable, reliable energy for all Americans. 

For more background on IDCs, read our blogs on why smart tax policy for IDCs bolsters American energy dominance and drives American labor and workforce.  

A Proven Economic Engine 

As a sector, American upstream producers bring nearly half a trillion dollars of total economic value, over 3 million jobs, and an average wage of $107,000 per year (nearly double the U.S. mean).¹ 

The oil and gas industry supports nearly 8% of our country’s Gross Domestic Product, and oil and natural gas revenues directly benefit state governments and local communities: 

• New Mexico: In FY 2023, oil and gas contributed $2.9 billion to the state’s general fund — 35% of its total budget.² 

• West Virginia: Since 2008, the industry has paid more than $5.4 billion in severance³ and property taxes, supporting essential public services.⁴ 

• Pennsylvania: The state’s severance tax, known as the Impact Fee, has generated over $2.5 billion since 2012.⁵ Additionally, $2.3 billion annually is paid out in royalty payments that benefit both landowners and the state.⁶ 

• Texas: In FY 2024, the oil and natural gas industry paid $27.3 billion in state and local taxes and royalties – funding schools, infrastructure, and emergency response programs.⁷ 

This is real-world economic impact that benefits communities every time a well is drilled, a rig is built, and a barrel is produced. 

IDCs as a Catalyst to More Investment, More Revenue, and More Jobs 

IDCs are the upfront costs of drilling – things like labor, site preparation, fuel, and equipment. These expenses make up roughly 80% of the cost of a new well. By allowing producers to deduct these expenses in the year they’re incurred, smart IDC tax policy enables companies to reinvest quickly into more exploration, more development, and ultimately, more energy production. 

When producers do reinvest, the effects extend beyond the well itself: 

• More drilling means more jobs, from roughnecks and drillers in the field to engineers and truck drivers across the supply chain. 

• More production means more revenue for local and state governments that rely on oil and gas to fund public services. 

• More energy means more security for American families and businesses that depend on affordable, domestic energy. 

A Policy That Pays Off for All Americans 

Smart IDC policy isn’t just about balance sheets. It’s about bolstering America’s economic foundation. When lawmakers support commonsense tax treatment for energy investment, they’re supporting jobs, revenue, and long-term economic growth. 

That’s why as reconciliation legislation moves to the Senate, now is the time to fix the tax treatment of IDCs and provide for their immediate deducibility. This will ensure that our economy strengthens, our communities thrive, and our energy future is secured.  

[1] Calculations based on the IMPLAN model and data from IHS Markit, Alaska’s Department of Natural Resources, and the Energy Information Administration.

[2] Jennifer Faubion, Oil and Gas Revenue to the State of New Mexico, June 11, 2024, https://www.nmlegis.gov/handouts/ALFC%20061124%20Item%204%20Oil%20and%20Gas%20Revenue%20to%20the%20State%20of%20NM.pdf

[3] A state-level tax imposed on the extraction of non-renewable natural resources.

[4] Gas & Oil Association of West Virginia, Gas Facts 2023-2024, https://gowv.com/resources/gas-facts/

[5] Marcellus Shale Coalition, Pennsylvania Impact Fee 2023, https://marcelluscoalition.org/wp-content/uploads/2023/06/Impact-Fee-2023.pdf

[6] American Exploration & Production Council, Energy Royalty Payments: Directly Benefiting The Economy, March 5, 2024, https://axpc.org/wp-content/uploads/2024/03/2024-03-05_Energy-Royalty-Payments-1.pdf

[7] Texas Oil & Gas Association, 2024 Annual Energy & Annual Economic Impact Report, January 7, 2025, https://www.txoga.org/2024eeir/