Obama budget cuts oil tax breaks to raise billions
WASHINGTON (Reuters) - The Obama administration on Thursday proposed raising billions by cutting big tax breaks for oil and natural gas companies, while raising spending to promote alternative energy sources.
The budget proposal, which must be approved by Congress, includes ending "unjustified tax loopholes" for oil and gas companies that would raise $26 billion over the next 10 years.
The White House rejected as "unfounded" industry claims that ending the tax breaks would take a significant toll on U.S. oil and gas production. It said oil and, to a large extent, gas are internationally traded commodities whose prices are determined on the world market.
"The oil and gas subsidies are costly to the American taxpayer and do little to incentivize production or reduce energy prices," the administration said in its budget proposal.
The administration wants to repeal expensing for certain intangible drilling costs, kill the manufacturing tax deduction for oil and gas companies and repeal the deduction for a certain percentage of the depletion of oil and gas wells.
"As a result, domestic oil and gas production subsidies generally do not significantly reduce the prices that consumers pay for products such as gasoline and home heating oil, resulting primarily in higher returns to the oil industry," the White House said.
INDUSTRY WARNS OF HIGHER COSTS
John Felmy, chief economist for the American Petroleum Institute, said ending these tax breaks would hurt oil and gas companies, especially given current bad economic conditions and tight credit.
"To say it will have no impact on those companies really doesn't measure up, because clearly cash flow and credit are a really important issue right now," he said.
He said "you can't make the argument that raising our costs of operations in our industry helps consumers" because removing the tax break will boost costs which may be passed on to consumers, and discourages investment in production.
"Certainly I think this administration or any administration has to find ways to raise taxes. The one thing I would say, though, is that the domestic oil and gas business is not the enemy," said Steve Farris, chief executive of Apache Corp, the largest U.S. independent oil and gas producer by market capitalization.
BUDGET SPENDING
Under the proposal, the U.S. Energy Department would also see its funding increase $406 million, or 1.6 percent, for the 2010 spending year that begins October 1 this year.
The department's 2010 budget, which would total nearly $26.4 billion, reflects the White House's priorities for modernizing the U.S. electric grid and promoting clean energy.
The budget provides government loan guarantees for renewable energy and electric transmission projects and initiatives to reduce air pollutants and greenhouse gas emissions.
Included in the budget are plans to fill the U.S. Strategic Petroleum Reserve to its 727-million-barrel capacity in early 2010 and also replace an unspecified storage cavern at one of the reserve sites, which "poses an environmental risk for continued use."
The emergency stockpile, created by Congress in the mid-1970s after the Arab oil embargo, now holds 719 million barrels of crude oil at four storage sites in Texas and Louisiana. Each site has numerous underground salt caverns that store the oil.
(Reporting by Tom Doggett; Additional reporting by Anna Driver in Houston: Editing by Marguerita Choy)
