Oil company representatives say their industry enjoys no 'unique tax credits or deductions'
WASHINGTON -- The bipolar congressional debate about how to rein in rising gas prices intensifies this week, with the House considering two bills to expedite and expand offshore drilling while Senate Democrats convene a hearing on whether the five largest oil and gas companies really need their tax incentives and deductions with prices so high at the pump.
A beer slogan on the side of a truck shows up above a vehicle filling up at a gas station in Sheboygan, Wis., Wednesday. Congress is debating appropriate measures to deal with rising gas prices.The opening salvo of the week came Monday from the American Petroleum Institute, the oil and gas industry trade group -- supported by the U.S. Chamber of Commerce, Americans for Tax Reform and the Small Business & Entrepreneurship Council -- holding a news conference at which they accused Democrats of plotting a shameless grab of oil company profits to pay for their spending plans.
"This is just a plain, ordinary money grab, not even a thinly veiled money grab," said Martin Regalia, chief economist of the U.S. Chamber of Commerce, who said the oil companies are simply a ripe target at a time of large profits because of high gas prices.
"It's a vindictive use of the tax code," said Brian Johnson, the senior tax adviser for API.
The Senate Finance Committee has asked brass from the top five oil companies -- ExxonMobil, Shell, Chevron, BP and Conoco Phillips -- to appear before a hearing Thursday on oil and gas tax incentives and rising energy prices, with an eye to moving legislation that would repeal tax breaks for those companies. The plan by Finance Committee Chairman Max Baucus, D-Mont., would include the elimination of the Section 199 domestic manufacturer's deduction, a reduction in their foreign tax credit for royalty payments to foreign governments, and the imposition of an excise tax on certain leases in the Gulf of Mexico.
But the industry representatives sought to redefine the vocabulary of the debate, suggesting that the industry enjoys no "unique tax credits or deductions," that it is just another industry, playing by the same or stricter tax rules as every other business, and turning a profit for their investors, who, ultimately, are almost anyone with an investment portfolio or retirement account.
Johnson said higher taxes would only punish an industry that already is taxed at an effective rate of 41 percent, way above the norm, that contributes more than $85 million a day to federal coffers, that supports the employment of 9.2 million Americans and 7.7 percent of the U.S. economy, and that the nation is depending on to lead it out of recession.
"Higher taxes would also hurt the owners of oil and natural gas companies," Johnson said. "Not oil and gas executives who hold only 1.5 percent of shares in the companies, but the nearly 100 million people who have shares in their 401(k) plans, their IRAs, their mutual funds and their pension plans. These and institutional investors like colleges and universities are the true owners of almost 99 percent of the value of America's oil and natural gas companies."
Asked why the Big Five oil companies couldn't simply settle for somewhat smaller profits if their taxes rose, Regalia, the Chamber economist, said their shareholders and investors wouldn't allow it.
The industry backs efforts by House Republicans to expand oil exploration and drilling.
The House last week approved a bill to require the Obama administration to move ahead this year with lease sales -- three in the Gulf of Mexico and one off the coast of Virginia -- that were canceled by the administration after the Deepwater Horizon oil spill. And the House is expected to begin debate today on two other bills to expedite permitting and open new areas to drilling.
The Republican approach has been denounced by the Obama administration, and it doesn't look as if it will get anywhere in the Senate. Meanwhile, Baucus' tax plan would be hard-pressed to get the 60 votes it needs in the Senate. However, some executives from the Big Five have indicated that tax breaks are less essential when prices are high, opening the door a crack for some sort of broader tax compromise, especially as congressional budget negotiators search for ways to close the budget gap.
The political pressure from the pump might ebb a bit, though, as some analysts are predicting a decline in gas prices this summer.
For now, Democrats, with a backdrop of huge profits and high gas prices, are happy to beat up on Republicans as toadies of industry.
As Rep. Edward Markey, D-Mass., put it last week, "GOP now stands for Gas and Oil Party."
Meanwhile, Sen. David Vitter, R-La., tweaked Senate Majority Leader Harry Reid, suggesting that if Reid is looking for an industry with unnecessary tax breaks, he might turn his gaze from the oil and gas industry to the gold-mining industry in his home state of Nevada.
In a letter to Reid on Monday, Vitter noted that "Secretary of the Treasury John Snyder stated in 1947 that 'there are no grounds which would justify instituting a subsidy to encourage the production of gold in this country.' Sixty-four years later, 'subsidies' are still being supplied to gold producers during this period of soaring gold prices."
Jonathan Tilove can be reached at jtilove@timespicayune.com or 202.857.5125.