Senate bill squeezes Big Oil to ease deficit

WASHINGTON Tue May 10, 2011 7:23pm EDT

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WASHINGTON (Reuters) - Democratic Senators introduced a bill on Tuesday that would repeal tax breaks enjoyed by the five biggest oil companies, freeing up $21 billion over a decade to ease the budget deficit.

Reducing tax breaks for oil and natural gas companies is also a goal of President Barack Obama, who has been keen to tack the blame for soaring gasoline prices on oil companies as he gears up for the 2012 election.

Senators Robert Menendez, Sherrod Brown and Claire McCaskill, who face tight races in next year's elections, introduced the bill as U.S. gasoline prices hovered just under $4 a gallon, about 14 cents off a record hit in 2008.

Senate Majority Leader Harry Reid said he hoped the measure would come to a vote in the full chamber next week.

The bill will likely draw opposition among Republicans, who have said such measures will send gasoline prices even higher.

But the bill's sponsors said it would save taxpayers about $2 billion a year, noting that oil companies have made $1 trillion in profits over the last decade.

"If we can't end subsidies to the five biggest, most profitable corporations in the history of the planet ... then I don't think anybody should take us seriously about deficit reduction," McCaskill told reporters.

The federal deficit is forecast to reach $1.4 trillion this year and stay in the trillion-dollar range for several more years as the economy recovers slowly from a deep recession.

Reid said ending tax breaks is a better way of easing the deficit than cutting government programs such as Medicare for the elderly. "Putting seniors ahead of oil companies should be a no-brainer," Reid told reporters.

Exxon Mobil Corp and Chevron Corp the biggest of the Big 5, have profited as oil trades at more than $100 a barrel. Exxon posted a profit for the first quarter of $10.65 billion and Chevron posted a $6.2 billion profit. BP Plc reported $5.5 billion in profits despite setbacks from last year's massive oil spill in the Gulf of Mexico.

The Menendez bill, which calls for all savings from the tax break repeal to go toward reducing the deficit, is a departure from a plan aired by Senator Max Baucus, who would have used some of the savings to promote renewable energy.

It would modify foreign tax credit rules that companies use to lower their U.S. tax payments. It would also limit deductions of income attributable to oil and natural gas production, and eliminate domestic manufacturing tax deductions for the companies.

Executives from the five biggest oil companies agreed to come to Capitol Hill to testify on Thursday at a Senate Finance Committee hearing on ending oil industry tax breaks.

The executives testifying are Exxon Mobil Chairman Rex Tillerson, Shell Oil Co. U.S. President Marvin Odum, BP America Chairman Lamar McKay, Chevron Chairman John Watson and ConocoPhillips Chairman James Mulva.

UPHILL BATTLE

Republicans, who control the House of Representatives, have opposed curbing the tax breaks, saying this would increase costs for oil companies that would be passed on to consumers in the form of higher gasoline prices.

The bill also will have to win over several Democrats in the Senate, such as Energy Committee chair Jeff Bingaman, who recently voted down a similar bill. Even if the bill passed in the Senate, it would likely be blocked in the House where many lawmakers prefer shrinking the federal deficit by cutting government programs.

The oil industry said the bill unfairly targets the five biggest companies leaving other big industries alone.

"Is it a noble cause to penalize one individual segment of an industry?" said Charles Drevna, president of the National Petrochemical & Refiners Association. "If you are going to tackle deficit spending the entire tax code needs to be addressed."

Analysts said the bill has slim chances of passing but signals a wider discontent from both parties with big oil company profits that could grow as high gas prices persist.

"The bill in its own right isn't necessarily a viable proposal, but it's a real signal of a real prospect -- the five largest companies are in the crosshairs," of politicians hearing from consumers angry over prices, said Kevin Book, an analyst at ClearView Energy Partners.

(Reporting by Timothy Gardner and Deborah Charles, editing by David Lawder and Lisa Shumaker)

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Comments (7)
USAPragmatist wrote:
“If we can’t end subsidies to the five biggest, most profitable corporations in the history of the planet … then I don’t think anybody should take us seriously about deficit reduction,” McCaskill told reporters…..SO TRUE!

May 10, 2011 8:05pm EDT  --  Report as abuse
HowleyGreen wrote:
The bias in the Republican position is evident. They say that we must maintain deficit creating tax breaks for big oil companies because the the consumer would ultimately pay in the form of higher prices. At the same time, they say that we cannot give the same tax breaks to renewable energy because that would increase the deficit.

What is really happening here is the Republicans are protecting the oil companies from free and fair competition.

The fact is: If we eliminate tax breaks and government subsidies for dirty fuels like oil and coal, and we will reduce the deficit and create a level playing field for renewables to compete. That isn’t a liberal position. That is basic conservative economics. Don’t let politicians rig government policies to give one industry an advantage over another. Let the marketplace decide.

John Howley
http://www.johnhowleygreenenergy.blogspot.com

May 11, 2011 8:00am EDT  --  Report as abuse
Soothsayer wrote:
First of all, 21 billion over 10 years is laughable, the deficit won’t notice this at all. Secondly, the article suggest the deficit will be stable over the next decade, when in fact, government figures predict it will increase by nearly an order of magnitude. It would be far more beneficial to break up the oil companies. The approvals of mergers the FTC during the Clinton administration (Chevron-Texaco, Exxon-Mobil, etc.) have since been proved to be ill-advised: competition is reduced, prices have skyrocketed, corporate influence has increased, and resources that would be better put to developing alternative energy sources are being confiscated by Big Oil. While they are at it, let’s have the states start collecting royalty payments, which I believe have been suspended, on the drilling leases in order to relieve stress on state finances and the citizens who the tax burden has been transferred to. And lastly, I’m not at all concerned that Big Oil would transfer the cost of these tax breaks to the pump, it would add less than a penny per gallon. When it comes to the price of gasoline, have more to worry about from inflation and our legislator than this pissant threat.

May 11, 2011 8:11am EDT  --  Report as abuse
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