Congress goes after Big Oil's tax breaks

By Tom Doggett - Analysis

WASHINGTON (Reuters) - With big oil companies earning huge profits, U.S. lawmakers want to take away some of the industry's tax breaks and use the money raised to promote alternative energy sources and energy conservation efforts.

Energy legislation passed by the House of Representatives last weekend would deny some $15 billion in tax breaks to oil and gas firms. Lawmakers, mostly Democrats, argued the companies could afford the loss.

"This bill sets an example by closing loopholes and repealing generous tax breaks to oil and gas companies enjoying record profits," said Rep. Charles Rangel, who heads the House's tax writing committee, when the legislation passed.

Still, the White House has threatened to veto the bill over the repealed tax breaks.

Senate Majority Leader Harry Reid, whose chamber passed its energy bill in June, said on Thursday that President George W. Bush was more interested in "giving massive tax breaks to oil companies, while consumers pay more at the pump."

The House legislation targets three industry tax breaks.

The biggest loss would repeal reduced tax rates on the income companies earn on the domestic oil and gas they produce and sell, costing the industry $11.4 billion over 10 years.

Companies also would be limited in claiming foreign tax credits on their overseas oil and gas extraction income, which would raise another $3.6 billion over a decade.

Companies would also have to take longer, seven years instead of five, to write off certain costs for exploring for oil and gas, bringing in $103 million over 10 years.

The industry is crying foul, arguing repealing the tax breaks would discourage oil and gas production and cost American workers their jobs.

"I don't think there's any question that going forward it will cause every company to reassess ... what their opportunities are," said John Felmy, chief economist for the American Petroleum Institute.

The API believes the bill is premised on the false idea the U.S. must choose between alternatives and oil and natural gas.

"There's no question it reduces the incentives to produce more" oil and gas, said Felmy. "It's punitive in terms of singling out the industry."

However, Richard Gordon, president of the Kansas City-based Gordon Energy Solutions consulting firm, said companies are committed to the years it will take to develop a big oil or gas field and they won't abandon them because of higher taxes.

"It's a long-term business. You're not going to walk away from these projects," Gordon said.