Canadian Free Trade Agreement Incentive Equalization Act

Canadian Free Trade Agreement Incentive Equalization Act - Amends the Internal Revenue Code to repeal the windfall profit tax on domestic crude oil.

Treats certain geological and geophysical costs as intangible drilling and development costs that a taxpayer may elect either to capitalize or to deduct for income tax purposes.

Exempts oil and gas wells from the application of the net income limitation on percentage depletion.

Revises the percentage depletion allowance applicable to oil and gas wells, retaining a 15 percent minimum, but increasing the percentage incrementally (to a maximum of 30 percent) as the average annual removal price falls below $20.

Permits a percentage depletion income tax deduction for proven oil and gas wells that have been transferred to a new owner. (Current law disallows the deduction after such a transfer.)

Applies the exemption of stripper well oil from the windfall profit tax after a transfer of such a well to a new owner. (Current law disallows the exemption after such a transfer.)

Repeals provisions that tax as ordinary income any gains from dispositions of oil, gas, or geothermal wells.

Establishes a marginal production income tax credit for producers who maintain economically unproductive oil wells. Applies the credit to domestic crude that is: (1) from stripper well property; (2) heavy oil; or (3) oil recovered through a tertiary recovery method. Fixes the credit at ten percent of the qualified cost (determined in accordance with a formula set forth in this Act) of each barrel produced by the producer during the tax year. Provides for the carryback and carryforward of unused credits.

Creates a crude oil and natural gas exploration and development tax credit as a component of the general business credit. Allows a five percent credit for qualified investments exceeding $10,000,000, ten percent for those of $10,000,000 or less. Permits the credit as an offset against the taxpayer's minimum tax liability.

Directs the President to: (1) establish a National Oil Import Ceiling, that level (not to exceed 50 percent) above which foreign crude oil and petroleum products as a share of U.S. oil consumption shall not rise; and (2) prepare and submit to the Congress with the presidential budget an annual report containing three-year projections with respect to both domestic oil and gas demand and production, and crude oil and petroleum product imports, including certification as to whether the imports will exceed the ceiling level. Grants to the Congress ten continuous session days after submission of the projections to review them and to determine whether violations of annual ceiling levels will occur. Declares the presidential certification binding after the ten days, unless the Congress disapproves or modifies it by joint resolution.

Requires the President, if the ceiling level will be exceeded, to submit to the Congress legislation to serve as an Energy Production and Oil Security Policy, which, if enacted, would prevent imports from exceeding the ceiling level. Authorizes the plan to include: (1) an oil import fee; (2) energy conservation actions; (3) expansion of the Strategic Petroleum Reserves; and (4) production incentives for domestic oil and gas.

Repeals provisions that identify intangible drilling costs as a tax preference item for purposes of determining alternative minimum tax liability.

Increases from 65 to 100 percent the taxable income limitation on the percentage depletion deduction for oil and gas property.

Conditions the implementation of certain provisions of this Act upon enactment of the implementing legislation for the U.S.-Canada Free Trade Agreement.