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As Congress Returns, Oil, Gas Tax Breaks May Take Center Stage

Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee, is drafting legislation to repeal billions of dollars in tax breaks for the five largest oil and natural gas companies. Repeal of tax breaks and other energy issues are likely to take center stage this week as Congress returns from its two-week Easter recess.

"Now is not the time to stand idly by while large oil and gas companies get billions of dollars in tax breaks -- now is the time to take concrete steps toward cleaner, more affordable domestically produced energy," he said. The tax breaks would be redirected to promote demand for clean, domestic fuel; provide incentives for fuel-efficient vehicles; and build a clean energy infrastructure, the committee said.

Baucus said his bill would eliminate the Section 199 manufacturing deduction, reduce the foreign tax credit for royalties payments to foreign governments and impose an excise tax on certain Gulf of Mexico leases.

A committee spokeswoman declined to say when the bill would be ready.

In his radio address on Saturday, President Obama renewed his call for Congress to remove $4 billion in oil and natural gas tax breaks from the budgets for fiscal years 2011 and 2012. Last week "the largest oil companies announced that they'd made more than $25 billion in the first few months of 2011 -- up about 30% from last year. Now I don't have a problem with any company or industry being rewarded for their success.

"The incentive of healthy profits is what fuels entrepreneurialism and helps [drive] our economy forward. But I do have a problem with the unwarranted taxpayer subsidies we've been handing out to oil and gas companies -- to the tune of $4 billion a year...These tax giveaways aren't right. They aren't smart. And we need to end them."

Senate Majority Leader Harry Reid (D-NV) has signaled that he hopes to hold a vote on the tax proposal as soon as possible, The Hill reported Monday. A Reid spokesman said the timing of the vote was dependent on the small-business bill that has been lingering on the Senate floor for weeks.

"As we expected, escalating gasoline prices created new momentum to repeal oil and gas subsidies while Congress was home over [the Easter] recess. The Democratic-led Senate will likely lead the activity, with votes promised by...Reid as early as this week. Even if a stand-alone repeal of conventional energy taxes were to pass the Senate, we think it fails in the House -- unless packaged with other sweeteners," said energy analysts Christine Tezak and Brian E. K. Kerkhoven of Robert.W. Baird Ltd.

House Speaker John Boehner (R-OH) last Monday appeared to support the elimination of oil and gas tax breaks, but then backtracked the following day (see Daily GPI, April 27).

The analysts called the Baucus proposal a "more interesting approach" because it "is advocating most, but not all, of the elements that we always thought could improve the prospects of success: packaging clean energy transportation incentives with changes to the tax preferences to the largest oil and natural gs companies only." The majors that would be stripped of tax breaks under the Baucus plan would likely be ExxonMobil, Chevron, ConocoPhillips, BP, Royal Dutch Shell and Citgo, they said.

The oil and gas industry fired back at the administration's proposed tax breaks. The Obama administration contends that its tax break proposal is aimed at Big Oil, but in reality "the meat of it targets independents," said Lee Fuller, vice president of government affairs for the Independent Petroleum Association of America, which represents independent producers.

American Petroleum Institute spokeswoman Rayola Dougher called Obama's proposals "short-sighted" and said they would lead to less investment in oil and gas, less fuel in the marketplace and increased dependency on foreign oil. API has scheduled a teleconference briefing with reporters Tuesday to further respond to the proposals to withdraw oil and gas tax breaks.

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