Oil subsidies' day of reckoning approaches

The idea of repealing oil industry tax breaks -- an issue that has dominated Capitol Hill discussions in the past two weeks -- will face its first true test in the Senate this week as Democratic leaders plan to hold a procedural vote on a bill that would slash some of the incentives for the largest companies.

A cloture vote is scheduled for Wednesday on Sen. Robert Menendez's (D-N.J.) plan to end a number of the tax breaks to pay down the deficit to the tune of $21 billion over the next 10 years.

That measure, S. 940, which has 28 Democratic co-sponsors, would ax a credit for tax payments made to foreign governments and would scale back a suite of deductions, like the domestic manufacturing tax deduction, another on intangible drilling costs and a third on operations to drive more oil out of aging wells. The measure also would repeal portions of a royalty-relief program that allows some oil companies to reduce or eliminate their royalty payments on federal drilling leases until they have recouped their investments.

President Obama and congressional Democrats in both the House and Senate are pushing the issue as they look to score points with constituents worried about soaring gasoline prices.

"In the last few months, the biggest oil companies made about $4 billion in profits each week. And yet, they get $4 billion in taxpayer subsidies each year," Obama said during his weekly address Saturday. "Four billion dollars at a time when Americans can barely fill up their tanks. Four billion dollars at a time when we're trying to reduce our deficit."


"This isn't fair, it makes no sense," he added. "Well, next week, there is a vote in Congress to end these oil company giveaways once and for all. And I hope Democrats and Republicans come together and get this done."

While Democrats acknowledge that scaling back the incentives won't lower gas prices, they are at least symbolically tying the two issues together. On Friday, Democrats touted two new reports that say ending the taxes won't increase gas prices -- as some in the oil industry and Republican allies have implied in recent days.

But the industry blasted the reports, calling one from the Democrat-controlled Joint Economic Committee "neither accurate nor insightful."

"Annually raising taxes on the industry by billions of dollars would reduce investment in American oil and natural gas development, cost thousands of U.S. jobs, and, over time, reduce both energy production and the taxes and royalties generated from it. It would also increase imports," said American Petroleum Institute Vice President of Regulatory and Economic Policy Kyle Isakower in a statement Friday. "We wouldn't reduce the deficit, and necessary government investments could be adversely affected."

"Those advocating tax increases, therefore, would be cutting off their nose to spite their face," he added.

As evidenced by Isakower's statement, the oil industry is staunchly opposed to such tax changes. And executives from the five largest oil companies made nearly identical cases before the Senate Finance Committee during a hearing on the subject last week.

"By undermining U.S. competitiveness, they would discourage future investment in energy projects in the United States and therefore undercut job creation and economic growth," said Exxon Mobil Corp. Chairman and CEO Rex Tillerson during the hearing. "And because they would hinder investment in new energy supplies, they do nothing to help reduce prices" (E&E Daily, May 13).

The industry has powerful allies in the Senate, including a near-united Republican caucus and at least two Democrats. Democratic Sens. Mary Landrieu of Louisiana and Mark Begich of Alaska have both vowed to vote down any measure that repeals the tax breaks.

"One thing every Alaskan knows -- just because you have an easy target doesn't mean that's the right thing to shoot," Begich said of the issue in a floor speech last week.

But Democratic leaders are convinced they have broad support for the measure and have even called out a handful of Republicans for making statements in support of similar measures in the past. Most recently, Sen. John McCain (R-Ariz.) last week said he was "leaning toward" supporting the measure. Democrats are also pushing Republican Sens. John Thune of South Dakota and Susan Collins of Maine to join their effort. Neither senator so far has jumped on the current oil subsidy-repeal bandwagon.

Sen. Lindsey Graham (R-S.C.), though, has said he could envision a scenario where such a measure might be worth discussing.

"If it was part of a package that led us to energy independence. At $100-a-barrel oil, it's hard to justify some of the subsidies, not just in isolation," Graham said. "At the end of the day, we have things we are comfortable talking about. They want to beat on oil companies; we want to drill. I want a rational energy policy. And if you beat on oil companies a little bit, drill a little bit, that's OK with me" (E&ENews PM, May 10).

House Democrats have tried several times to force votes on measures that would end some of the tax breaks, but the GOP majority in the House has prevented such votes each time. And Wednesday's vote in the Senate will likely fail. But that does not mean the issue is going away. Democrats have vowed to bring it up again as they push forward a deficit reduction plan later in the summer.

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