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Senate Rejects Windfall Profits Tax, But Adds $5B to Energy Companies' Tax Burden

The Republican-led Senate rejected Democratic efforts to levy a controversial windfall profits tax on the earnings of major energy companies as part of the $60 billion tax reconciliation bill that was passed Friday, but it added nearly $5 billion to the tax burden of oil companies and repealed tax benefits that were approved in the energy bill in August.

The tax legislation, which cleared the Senate by a 64-33 vote, includes provisions that would require major energy companies to pay an additional $4.9 billion in taxes next year under a LIFO inventory accounting change. The proposal would apply primarily to integrated oil companies that have gross receipts of more than $1 billion annually. The White House indicated it would veto the tax bill if this provision is not removed.

The bill (S. 2020) also includes language, proposed by Sen. Ron Wyden (D-OR), that would scale back a tax break for oil and gas drilling projects so that it does not apply to large integrated companies. The tax break, which was part of the Energy Policy Act of 2005, would have provided incentives totaling about $1 billion over a 10-year period, according to Wyden's office.

Democratic efforts to penalize energy companies even further by stripping them of more tax benefits and imposing a tax on excess profits were rebuffed by Republicans, along with a handful of Democrats.

By 64 to 35, Senate defeated an amendment, offered by Sens. Byron Dorgan (D-ND) and Christopher Dodd (D-CT), that would have imposed a 50% excise tax on oil company profits above $40 a barrel, to be rebated directly to energy consumers. Exempted from the tax would have been energy companies who reinvested their earnings to expand supplies of oil and natural gas or build new refinery capacity.

Sen. Charles Grassley (R-IA), chairman of the Senate Finance Committee, motioned that the Dorgan-Dodd amendment was "not germane" to the tax bill, which triggered an automatic vote on whether to waive the Budget Act to allow the proposal to proceed. The Senate voted 64 to 35 not to grant the waiver, which effectively killed the amendment.

Leading the opposition to the amendment on the Senate floor Thursday was Sen. Craig Thomas (R-WY). Other Democratic proposals calling for a temporary windfall profits tax and stiffer federal price-gouging penalties failed as well.

Also rejected was an amendment, offered by Sen. Dianne Feinstein (D-CA), that would have rescinded certain tax breaks for integrated energy companies related to oil and gas well intangible drilling and development costs. Her measure would have repealed the tax benefit for large companies that have an average daily worldwide production of at least 500,000 barrels of crude for any taxable year beginning after Dec. 31, 2005.

Feinstein said she offered the proposal after the chiefs of five major energy companies testified at a joint Senate committee hearing earlier this month that they didn't need the tax incentives offered in the Energy Policy Act of 2005. But Sen. Pete Domenici (R-NM), chairman of the Senate Energy and Natural Resources Committee, argued the tax break that Feinstein was seeking to void was not part of the energy bill. Rather, he said it has been policy for "eons."

Grassley again motioned that the amendment was "not germane" to the Senate tax package, which triggered a vote on whether to waive the Budget Act to allow Feinstein's proposal to proceed. By a narrow margin of 51 to 48, the Senate voted not to grant the waiver.

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