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Enterprise Products Partners L.P. Message Board

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  • ch4_tycoon ch4_tycoon May 5, 2010 10:28 AM Flag

    Obama Threatens MLP Tax Incentive

    That article is NOT about taxing MLP's

    "Those are a so-called Section 199 deduction, which effectively reduces the corporate tax rate for companies that perform manufacturing and construction activities in the U.S.; a write-off for "intangible drilling costs," which includes most noncapital costs associated with extracting oil or gas; and "percentage depletion," a form of depreciation that applies to natural resources. "

    that is a different animal

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    • [1] Ch4_tycoon wrote - correctly - that the tax changes referenced in the cited article would not hit the non-E&P MLPs. But - anything hurting the rig count will hurt MLPs.

      [2] There is a lot of volume hurting prices in other sectors today. REITs are down. BDCs are down. So this could be a more generic 'equity income' sell-off than it is a unique MLP sell-off.

      [3] We are not going to know the 'whys' for this sell off until this event is over. But MLPs began this sell-off at valuations that were at the mid-point of fairly valued. One could make the case that any sector that is close to fairly valued in the current environment of economic uncertainty is really over-valued.

      [4] My thinking - if you are a buy and hold type - there is no news to generate selling today. And I would only buy if I were under weight in my MLP sector weighting. If you have not set a target percentage of your holdings you want in MLPs, then you really need to make THAT decision first.

      • 1 Reply to factoids2002
      • Hedge funds are being hurt badly by the situation in Europe to the extent that they are back to playing the carry trade game.

        This selloff is reminiscent of the late 2008 to MAR 2009 selloff..... unmerciful, neverending, and taking valuations well below simply because the mass liquidiation was done by the hedge funds.

        This type of trading that we saw first thing is the reason I believe hedge funds must be fully regulated. In essence these guys play at the insane end of the spectrum and wind up leverage so high that required wind downs create the distorions we saw this morning.

        Hedge funds have to wind up to make the 20 and 2 they need in order to justify their existence. When will investors in hedge funds finally wake up to the reality of risk reward and take a different view toward investing?

    • ty,

      Let's not forget that MLP's are partnerships which are "pass through entities". The tax attributes of the partnership pass through to its partners, or unit holders of our MLP. So then, if there is a change in Sec. 199, that change will affect those partners that may benefit from or suffer respectively from a position relating to their Sec. 199 attributes.

      I would not venture to guess how all of this Obamanian Legislation will turn out. However, if it adversely affects the energy producers in the US of A, it will be an enormous mistake.

      This country needs energy and should continue to provide incentives to those in the industry for the risk of exploring for, finding, extracting and distributing it.

      We have been captive to oil producing nations who, in many cases, do not share our political and social views for many years. Giving up this critical resource to those alien forces is totally against the American Way and weakens our global positioning. That cannot happen and Obama knows that as well as he knows his oath of office.(No pun intended).

      Stay tuned!

    • There was measure to tax mlps in some committee within the last two years. It is certain to resurface in the current climate. I think the plan was to grandfather established investors, but tax going forward from a specified date.

      • 1 Reply to balegoba1966
      • Not possible to create two classes of taxation. That amounts to an equal protection clause court issue.

        MLPs were established as the cheapest means of funding the vast energy transportation platform. I suspect most senators would be in no mood to change inasmuch as the law was cutback many years ago to exclude all but energy related MLPs.

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