TAX POLICY:

Sparring over oil and gas tax breaks expected amid budget wars

The looming battle over the federal budget looks set to revive a long-simmering fight over what tax benefits should be afforded to oil and natural gas companies.

Senate Democratic leaders yesterday said they will produce a budget resolution through regular order for the first time in nearly four years, after largely sidestepping the politically contentious, yet nonbinding, budget fights that were seen as unlikely to generate any agreement with House Republicans. The House yesterday passed a bill that would delay for three months the looming debt ceiling and would force senators to come up with a budget or forgo their paychecks; the Senate is expected to take up the bill in the coming days (E&ENews PM, Jan. 23).

Senate Budget Chairwoman Patty Murray (D-Wash.) said yesterday she would mark up a budget resolution in committee and bring it to the full Senate floor. She did not divulge any specifics on what it would include, but a statement indicated support for a plan in which the "wealthy ... pay their fair share" and that would avoid tax cuts for large corporations.

While details are sparse, the budget could call for eliminating about $4 billion in annual tax incentives to oil and gas companies, as President Obama has outlined in his recent budget proposals.

"Sen. Murray plans to work with members of her committee and others to put the resolution together. As you know, she has supported ending these tax breaks and subsidies for oil and gas companies," a Budget Committee aide said yesterday.

The oil industry and its allies in Congress -- mostly Republicans as well as several oil state Democrats -- have long defended the tax breaks as standard business deductions available to a variety of industries. And although the coming budget fight is likely to be waged on a variety of fronts, eliminating tax incentives that critics decry as "Big Oil subsidies" is likely to be one of them.

"We're going to have to figure out a balanced way to reduce the deficit, which means raising revenues, closing loopholes and cutting spending. One obvious place for many of us is to eliminate the tax subsidy to the oil industry," said Rep. Henry Waxman (D-Calif.), the ranking member of the Energy and Commerce Committee. "This can't be justified any longer -- these are very profitable businesses -- so I think that will be on the table for discussion."

Waxman also said he hoped the budget debate would be an opportunity to "help reduce the deficit by putting a price on carbon," which also would help to address climate change. He said he has not decided yet whether to introduce a carbon tax bill, although Rep. Jim McDermott (D-Wash.) is planning such a move despite steep GOP resistance (Greenwire, Jan. 16).

Sen. John Hoeven (R-N.D.) predicted that the budget showdown would be the "starting point" of a fight over tax subsidies but suggested that Democratic attempts to limit oil company incentives would not gain much traction.

"If you look at the net tax rate that the energy companies pay, it's as high or higher than that of other companies," Hoeven said. "So again, if they go after it ... in a way that raises taxes, no that's not going to work."

On the House side, Rep. Paul Ryan (Wis.), last year's GOP vice presidential nominee, again is spearheading budget efforts in his role as Budget chairman. Few details about this year's effort have been made public, but last year's Ryan budget faced steep criticism from Democrats over its preservation of oil company tax breaks and deep cuts to environmental programs (E&E Daily, March 26, 2012).

However, some Republicans have floated the possibility of eliminating at least some of the benefits enjoyed by traditional energy companies, as part of a broader tax reform effort. GOP nominee Mitt Romney notably opened the door to eliminating a smaller batch of subsidies in one of last year's presidential debates (E&ENews PM, Oct. 4, 2012).

"Some of those will, I'm sure, be a part of the discussion," Rep. Cory Gardner (R-Colo.) said of the oil and gas tax breaks. "The bottom line is, do you make a flatter, fairer tax system through the code? That's what we tried to do with the last budget, and I'm sure that will be part of it."

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