Senate takes up bill repealing $2B oil tax breaks

Associated Press
Sen. Chuck Schumer, D-NY, talks to reporters about rising oil refinery profits that could keep gasoline prices high despite the recent drop in oil prices,at the Capitol in Washington, Tuesday, May 17, 2011. (AP Photo/J. Scott Applewhite)
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The Senate is voting on a bill Tuesday that would repeal about $2 billion a year in tax breaks for the five biggest oil companies, a Democratic response to $4-a-gallon gasoline that might fare better when Congress and the White House negotiate a deal later this year to increase the government's ability to borrow.

The bill is expected to be defeated in a procedural vote in the evening. But Democrats hope to build their case to include the measure in a deficit-reduction package being negotiated by key lawmakers and the Obama administration. Lawmakers from both parties are demanding deficit reduction as part of deal to increase the government's ability to borrow and avoid an unprecedented default on U.S. Treasury bonds.

"Why should Americans pay at the gas pump once and then give these subsidies to the oil companies a second time?" said Senate Majority Leader Harry Reid, D- Nev. "We believe we need to cut government spending," he said, adding, "The place to start is with these subsidies."

The heads of the five oil companies defended the tax breaks at a Senate hearing last week, saying they just want the same tax advantages enjoyed by other industries. The companies are Shell Oil Co., ExxonMobil, ConocoPhillips, BP America and Chevron Corp.

Together, they logged profits totaling $36 billion during the first quarter. The Democrats say that with profits that high, the big oil companies wouldn't miss tax breaks that average $2 billion a year.

Senate Republicans and some Democrats opposed the tax increases, noting they would do nothing to lower gas prices. The U.S. Chamber of Commerce called the tax increases "misguided, unwarranted, and ultimately counterproductive."

"With Americans looking for real relief, symbolic votes like this that aim to do nothing but pit people against each other will only frustrate the public even more," said Senate Republican Leader Mitch McConnell of Kentucky. "Americans aren't interested in scapegoats. They just want to pay less to fill up their cars."

Some GOP lawmakers argued that the bill would increase gas prices further. However, the nonpartisan Congressional Research Service has concluded that eliminating the tax breaks would be unlikely to result in higher gasoline prices, which are influenced by a host of factors. The report said the bill would raise about $1.2 billion in 2012. By comparison, the five oil companies had combined revenues of $1.5 trillion last year.

A GOP measure designed to increase offshore drilling is scheduled for a Senate vote on Wednesday, though it is not expected to pass, either. The bill would force the Interior secretary to conduct offshore lease sales in the Gulf of Mexico, Virginia and Alaska that were delayed by the Obama administration after the Gulf oil spill. It also would give the agency a maximum of 60 days to make a decision on a drilling permit. If the agency does not act within that time, drilling would be approved, regardless of the status of environmental and safety reviews.

Republicans argue that their bill, which is backed by the Chamber of Commerce, would increase domestic oil production, sending a signal to the market that could eventually lead to lower gas prices. Similar measures easily passed the Republican-controlled House.

The White House opposed them all. Instead, President Barack Obama directed his administration this past weekend to ramp up U.S. oil production by adopting some of the GOP's strategies. He said he would extend existing leases in the Gulf of Mexico and off Alaska's coast that had been halted or delayed by the spill or new safety requirements. And he vowed to hold lease sales in the central and western Gulf of Mexico by mid-2012, as the Republican bills would require.

Gasoline is more than $4 a gallon in many parts of the country. The national average is $3.94 a gallon for regular unleaded, up from $2.87 a gallon a year ago, according to AAA.

Five Democratic senators, led by Missouri's Sen. Claire McCaskill, asked the Federal Trade Commission Tuesday to investigate "potential price fixing of gasoline by U.S. refiners." The senators said U.S refineries have cut back production even as gas prices rose, increasing their profit margins.

Obama has called for eliminating tax breaks for all oil and gas companies every year since he took office in 2009, a proposal that would raise an estimated $44 billion over the next decade. Lawmakers, including Democrats from oil-producing states, complained that Obama's proposal would raise taxes on many small and medium-sized businesses involved in oil production.

The bill being voted on Tuesday would target only the five largest oil companies, raising about $21 billion over the same period. The White House issued a statement supporting the tax bill Tuesday, calling the tax breaks "wasteful subsidies."

The most generous tax break is a deduction available to U.S. manufacturers across industries. Under the provision, oil and gas companies were classified as manufacturers, but their deduction was capped at a lower rate than other industries.

Another subsidy, established in 1913 to encourage domestic drilling, allows oil companies to deduct more quickly the costs of preparing a site for drilling. Another allows oil companies to reduce their American taxes by deducting royalties paid to foreign governments.

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Associated Press writer Dina Cappiello contributed to this report.

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