Second Thoughts in Congress on Oil Tax Breaks
By EDMUND L. ANDREWS and MICHAEL JANOFSKY
Published: April 27, 2006
WASHINGTON, April 26 — As anxiety spread in Congress on Wednesday over
soaring oil prices, lawmakers in both parties said they were ready to
take a tough look at oil and gas incentives they passed as recently as
eight months ago.
Citing record industry profits and huge executive pay packages, the top
Republican and top Democrat on the Senate Finance Committee asked the
Internal Revenue Service to turn over tax returns for the nation's 15
biggest oil and gas companies.
Leading Republicans echoed President Bush's call Tuesday to trim about
$2 billion in tax breaks Congress passed as part of the energy bill last
August. Several prominent Democrats, not to be outdone, pushed for
repealing oil and gas tax breaks worth more than $10 billion over the
next five years.
"Nobody has any sympathy for oil companies on Capitol Hill right now,"
said Representative Jack Kingston, Republican of Georgia and vice
chairman of the House Republican Conference. "You talk to someone
driving to work in an F-150 pickup and paying $75 to fill up his tank,
and everybody's on his side."
Both parties jockeyed for political advantage even as they were grasping
for ideas. Most experts contend that the government has few options that
would quickly reduce gasoline prices, and competing party agendas could
block Congressional agreement on any meaningful legislation.
Lawmakers have introduced more than 30 energy bills in the last several
months. But they reflect often -conflicting goals of reducing prices,
increasing production and soothing consumer anger about oil industry
profits.
Democrats called for a 60-day halt on collecting federal gasoline taxes,
which are 18.4 cents a gallon, but they were openly split about the more
radical step of imposing a windfall profits tax on major oil companies.
For their part, many Republicans are torn between wanting to show their
sympathy for consumers and maintaining their longstanding support for
the oil industry.
"Nobody's happy with gasoline prices being where they are," said
Representative Joe L. Barton, Republican of Texas and chairman of the
House Energy and Commerce Committee, who last year championed scores of
new tax breaks for the industry.
Congressional Republican leaders are negotiating with White House
officials over a bill to expand on Mr. Bush's proposals for alternative
fuels and conservation, but disarray among lawmakers was evident across
Capitol Hill.
The energy industry is also politically divided. Most big integrated oil
companies, like Exxon Mobil and Chevron, have shown no interest in
defending the $2.7 billion in tax breaks in last year's energy bill.
But the hundreds of smaller independent producers want to preserve as
many incentives as possible. In singling out tax and spending incentives
to be eliminated, Mr. Bush did not criticize a new expansion of tax
write-offs for smaller oil refineries.
"The big companies don't want them, don't need them and are not asking
for them," said J. Robinson West, chairman of PFC Energy, an oil
industry consulting firm. But the smaller independents, he said, "are
not going to give up easily."
The Congressional Joint Committee on Taxation estimated Tuesday that oil
and gas companies would receive about $10 billion in tax breaks over the
next five years that are specifically aimed at their industry.
Most of those tax breaks have been around for many years. They allow
energy companies to take substantial write-offs on their investments in
new equipment and hefty "depletion allowances" as companies use up the
oil and gas in a particular field.
Neither Mr. Bush nor Republican leaders in Congress have suggested an
attack on the industry's main tax breaks. Nor are they proposing to trim
back tax incentives written primarily for industry in general that also
benefit major oil companies.
One obscure tax cut, for example, included in a 2004 law to promote
domestic manufacturing, is expected to save energy companies at least
$3.6 billion over the next decade. ConocoPhillips, which earned $13.5
billion in 2005, saved $106 million last year on that provision, which
reduces the corporate tax rate on profits on goods produced in the
United States.
President Bush and Congressional leaders are focusing on about $2
billion in tax breaks in last year's energy bill. Among other things,
those tax breaks let companies write off in just two years the geology
studies associated with exploration. For decades, the courts and the
I.R.S. have said that these are capital investments that can be written
off only slowly, as oil is produced from the fields.
Mr. Bush also called for repealing several hundred million dollars in
subsidies, also in the energy bill, for an industry-run deepwater
drilling research center in Sugar Land, Tex. That project's biggest
champion was Representative Tom DeLay, the former House majority leader
whose district includes Sugar Land.
Many Democrats had opposed the new tax breaks all along, and Senate
Democrats pushed for a provision that would trim them in a broader tax
bill that the Senate passed last fall. But that provision was not
approved by the House.
On Wednesday, leading Republicans made it clear they were now willing
and even eager to eliminate some of those tax breaks.
"I am happy to repeal tax breaks for the development of oil in foreign
countries," said Senator Pete V. Domenici, Republican of New Mexico and
chairman of the Senate Energy and Natural Resources Committee. "I cannot
support the concept of tax breaks for oil companies while some American
families are searching their budgets for the extra cash they need to
fill their gas tanks."
But Republican lawmakers want to combine their seemingly tough new
stance with measures to increase production. High on the list is a new
attempt to open the Arctic National Wildlife Refuge to exploration.
Democrats are focusing more on taking things away from the industry.
Senator John Kerry of Massachusetts proposed legislation this week to
repeal all tax breaks for oil drilling and production — about $10
billion over the next five years.
Senator Ron Wyden, Democrat of Oregon, proposed a measure to force
energy companies to pay royalties to the government on all oil and gas
they produce on federal leases in the Gulf of Mexico, if the price of
crude oil is above $55 a barrel. Some energy companies are now allowed
"royalty relief" expected to total about $7 billion over the next five
years.
The mounting suspicion of oil companies was apparent in a letter to the
I.R.S. from Senator Charles E. Grassley, the Iowa Republican who is
chairman of the Finance Committee, and Senator Max Baucus of Montana,
the committee's senior Democrat. They demanded that the I.R.S. let them
review the past five years of tax returns filed by the nation's 15
biggest oil companies.
The senators pointedly noted an "extremely lucrative retirement plan by
one oil and gas industry executive" — an allusion to Lee R. Raymond,
former chairman of Exxon Mobil, who received $398 million in
compensation on retiring last year.
"We're seeing record profits and significant executive compensation in
the oil and gas industry," Mr. Grassley said. "I want to make sure the
oil companies aren't taking a speed pass by the tax man."
Red Caveney, president of the American Petroleum Institute, which
represents the large oil companies, said his group would not fight to
retain the newest tax breaks.
"We understand the frustration that consumers have expressed about
energy prices," Mr. Caveney told reporters on Wednesday.
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