Mary Landrieu breaks with her fellow Democrats, opposes singling out oil industry
In seeking alternatives to the Republican proposal to reduce the deficit solely with cuts in federal spending, Democrats are targeting three sections of the tax code that provide the oil industry with benefits worth $21 billion over the next 10 years.
View full sizeThis oil rig and supply vessel were photographed in the Gulf of Mexico off the coast of Louisiana on April 10. The details of the Democratic plans have been largely lost in the emotional debate about whether taxes on the wealthy and on profitable corporations should be raised as part of a deficit reduction plan Republicans are demanding before they'll agree to raise the current $14.3 trillion debt limit.
Senate Democrats say their plan, which was blocked by a coalition of Republicans and oil-state Democrats but has been resurrected in the deficit reduction negotiations, would target only the big oil companies that are extremely profitable.
The Democrats' package would repeal a domestic manufacturing deduction, worth more than $12 billion; a deduction for taxes paid to foreign governments, worth about $6 billion; and a provision that allows companies to deduct intangible drilling and development costs, worth $2 billion. On the foreign taxes, Democrats said much of the money constitutes royalty payments for oil and aren't really taxes.
Though Republicans say that tax increases are off the table for revenue production, Democrats say that some increases or elimination of loopholes are needed so the brunt of deficit reduction doesn't fall on the middle class and poor.
"If we're going to put this on the backs of middle-class working families who spend more of their disposable income, then I don't know how we're going to drive this economy," Sen. Robert Menendez, D-N.J., said during a Senate Banking Committee hearing Thursday. "Wouldn't you think that it's fair to consider a shared sacrifice that is spread across the board to try to solve this debt ceiling question and the debt questions that confront the nation?"
Sen. Mary Landrieu, D-La., who helped sink the Democratic taxing plan for the oil and gas industry in May, said the oil industry shouldn't be targeted in any deficit-reduction plan.
The taxes proposed by Senate Democrats would be limited to the big five oil companies: Exxon Mobil, Shell, Chevron, BP and Conoco Philips. But Landrieu said the impact would also hit smaller independent producers because many drilling projects are done in partnerships between the Big Five and smaller companies.
Landrieu went on Fox News just after the Senate debate ended in May, when Democrats couldn't get the 60 votes to end a filibuster, to argue that she was right to join Republicans in opposing the measure.
"Now when we reform the tax code, which we most certainly need to do, then we need to throw all of that on the table and consider it," Landrieu said, referring to tax subsidies for a wide range of businesses. "But to pick them out, an industry that employs 9.2 million people in America, I thought was the wrong thing to do."
Rep. Steve Scalise, R-Jefferson, said, "Higher taxes on American energy will lead directly to higher prices at the pump and will force thousands more jobs out of our country while making us more dependent on Middle Eastern oil."
Two recent studies paint conflicting pictures on the impact of higher oil and gas industry taxes.
According to a study by Bloomberg Government, if Congress were to adopt the original plan submitted by President Barack Obama in February -- eliminating $42 billion in tax breaks for the oil industry -- the result would be a 4 percent reduction in wells drilled.
But eliminating tax breaks just for the Big Five oil companies, as Senate Democrats propose, would have a negligible effect, Bloomberg said.
The study concluded that the five majors would likely maintain U.S. drilling at current levels, paying for the tax increases by shifting money from share repurchases or dividends.
A separate report this week by Louisiana State University economist Joseph Mason for the American Energy Alliance, an industry advocacy group, concluded that repealing tax deductions for the oil industry would end up costing the government more than it would raise because of the reduced production sure to result.
"The net fiscal effect -- a loss of $53.5 billion in tax revenues -- suggests that the policy proposals exacerbate, rather than alleviate, the federal deficit," Mason said.
Bruce Alpert can be reached at balpert@timespicayune.com or 202.857.5131.