Big Oil to lobby for tax breaks

Major oil companies — which barely flinched when Congress moved to quadruple a liability tax they pay for oil-spill cleanup — are aggressively fighting Democrats’ plans to scale back industry tax breaks worth billions.

Backed by the White House, Democratic House and Senate tax writers are looking at rolling back oil and gas industry incentives to fund alternative energy projects, conservation and “green” job creation.

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But the American Petroleum Institute (API) is trying to defeat the effort, and hopes it will have some leverage to do so, especially after holding its tongue when Democrats increased a per-barrel oil liability tax from 8 cents to 49.

“We certainly get the sense that there’s a piling-on, instead of areas where we could be more constructive,” said Stephen Comstock, API’s manager of tax policy. “The raising of these taxes ha[s] nothing to do with the event in the Gulf, and so to us it’s a slight to the industry.”

Critics of the tax breaks argue they have nothing to do, either, with keeping production steady in the wake of the Gulf of Mexico oil spill.

“We’re still discussing as a revenue source some of these tax breaks that the oil companies get that were meant for a different time when exploration was virtually nonexistent,” said Sen. Robert Menendez (D-N.J.), a member of the Finance panel and leading critic of offshore oil and gas drilling. “Exploration is now deeply sought. You don’t have to give tax breaks to prepare for exploration and you don’t have to give tax breaks to let them take advantage of foreign tax codes and avoid paying money here.”

Some say the spill may give Obama and congressional Democrats the ammunition they need to finally roll back incentives they’ve targeted for some time.

“For years the president has advocated for the rollback of tax breaks and giveaways to oil and gas companies both domestically and internationally,” a White House official said. “These are investments we should be making to transition to a clean-energy economy, not to subsidize production that is already occurring.”

But an amendment from Sen. Bernie Sanders (I-Vt.) to repeal $35 billion in oil and gas tax breaks over the next decade easily lost, on a 35-61 vote, in recent debate over so-called tax extenders legislation. Twenty-one Democrats — including Finance Committee Chairman Max Baucus (D-Mont.) and five other panel Democrats — and Sen. Joe Lieberman (I-Conn.) voted no.

Now Senate Finance Democrats are considering a three-tiered approach: repealing or scaling back a manufacturing tax credit for major companies; reducing the tax deduction companies can claim on foreign earned income; and reinstating a Superfund hazardous waste tax dormant since 1995.

All three options are on the table as revenue raisers in a potentially $15 billion to $20 billion package of tax incentives promoting alternative energy sources and conservation that will be part of a broader energy and climate strategy.

The tax incentives Democrats are going after largely mirror those Obama included in his fiscal 2011 budget request. His budget proposal raises taxes by roughly $40 billion on oil and gas companies by closing several loopholes used by the industry.

Senate Republicans — and some Democrats — could back up the oil companies.

“The only thing I would support is those things you call loopholes that have no economic substance,” Senate Finance ranking member Chuck Grassley (R-Iowa) said. “We should not do anything to discourage domestic production.”

Grassley said the Superfund tax “showed absolutely no value,” while “there might be something in the area” of a manufacturing credit that senators could agree on. As for a dual-capacity tax deduction, Grassley cautioned, “You should not have double taxation on anything.”

Sen. Mary Landrieu (D-La.) — who represents a state hit hard environmentally and economically by the spill but also one in which the oil and gas industry is key — is also fighting potential tax hits.

 “That would be very damaging to an industry that’s already seemingly under attack by this administration,” Landrieu said. “They think it’s easy — just tax Big Oil, tax Big Oil. It’s not Big Oil we’re necessarily worried about. It’s the hundreds of American companies that service them.

 “If people don’t understand Economics 101 in this Congress, I feel sorry for them,” she added.

The Finance panel may meet next week on the issue. “We’re considering that question, don’t know for sure,” Baucus said regarding the panel formally debating and voting on a tax package.

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The Finance tax package may be tough for some Republicans to oppose, depending on what sweeteners are included for their states and regions. Grassley, for example, may see plenty of support included for biofuels and a multiyear extension of an ethanol tariff.

House Ways and Means Committee Democrats are looking to vote in the panel next week on a green jobs initiative that could use some of the same oil and gas tax dollars to pay for it.
Baucus declined to detail what a Finance tax package would include, but said, “Current oil industry tax breaks are on the table.”

While some of these were included in Obama’s budget proposal this year, Baucus emphasized that there is no guarantee that any of the tax hits will be included in a package he brings to the floor.