OGJ Washington Editor
WASHINGTON, DC, May 12 -- Democrats on the US Senate Finance Committee accused executives from five major oil companies of being badly out of touch with the American people for not being willing to surrender tax deductions in an effort to reduce the federal budget deficit. Doing away with the oil and gas industry’s use of deductions, which essentially would remain available to other businesses, would do much more harm than good, the executives responded.
The May 12 hearing came 2 days after Robert Menendez (NJ) and three other Senate Democrats introduced a bill aimed at raising $21 billion over 10 years to help reduce the national budget deficit by closing what the lawmakers consider federal tax loopholes for the oil and gas industry. It quickly gained Senate Majority Leader Harry M. Reid’s (D-Nev.) support and could come to a vote in another week.
Finance Committee Chairman Max Baucus (D-Mont.) said in his opening statement at the hearing that US families are expected to each pay about $825 more for gasoline in 2011 than they did in 2010, while the five largest US oil companies are expected to have their most profitable year ever. “Businesses should make a profit—that’s what drives our economy—but do these very profitable companies actually need taxpayer subsidies?” he asked.
Committee member John D. Rockefeller IV (D-W.Va.) went further and lectured the witnesses. “I get the feeling that the five of you are almost like Saudi Arabia,” he told them. “You get caught up in your profits and can’t understand the concept of sharing. You seem out of touch not only with what we’re trying to do, but also with the American people. I don’t think you have any idea what the size of your profits does to their ability to accept what you say.”
Not ‘out of touch’
The witnesses immediately disagreed with him. “I’m not out of touch at all. We understand the problems of dealing with this huge deficit,” responded ExxonMobil Corp. Chief Executive Rex W. Tillerson. John W. Watson, his counterpart at Chevron Corp., said that he thought the American people preferred shared prosperity to shared sacrifices.
“We feel like we’re constrained and restricted from our opportunities,” added ConocoPhillips Chief Executive James J. Mulva, adding, “We’re in a noble industry that has contributed a lot to our standard of living. We’re not looking for incentives; we want to get back to work.”
They and the two other witnesses—BP America Inc. Chairman and Pres. H. LaMar McKay and Shell Oil Co. Pres. Marvin Odum—emphasized that the tax code provisions targeted by Menendez’s bill are deductions available to other industries. This is particularly true of the Section 199 deduction designed to help US manufacturers compete with foreign firms that receive subsidies from their home governments, they said. The oil and gas industry already deducts less—6% instead of the 9% other US manufacturers receive—under the law currently. Menendez’s bill would completely eliminate the deduction for the US oil and gas industry.
That approach discriminates in other ways because it doesn’t affect foreign oil companies with significant US operations, Tillerson pointed out. The same is true with the bill’s proposal to modify the dual capacity provision under the foreign tax credit, he indicated. “This is one area when you won’t find the five companies at this table aligned because two of them are foreign companies which operate under a territorial tax system in their home countries,” the ExxonMobil executive said. “What we’d like is a level playing field.”
Sen. Orrin G. Hatch (R-Utah), the committee’s ranking minority member, questioned the bill’s motives. “Nothing makes for a ‘kumbaya moment’ like high gasoline prices,” he said in his opening statement. “Republicans don’t like paying them any more than Democrats do. With one voice, Americans are telling us to do something about them. Unfortunately, for some people, the political philosophy of [former Obama White House Chief of Staff Rahm Emanuel] is too hard to resist: Never let a crisis go to waste. Faced with an issue of legitimate concern, politicians and their media allies decided to exploit high [gasoline] prices for political gain.”
When committee member Ron Wyden (D-Ore.) suggested that US companies using the foreign tax credit’s dual capacity provision might be trying to disguise some royalties as foreign taxes, the witnesses from the three US-based companies said the US Internal Revenue Service requires submission of detailed information to prevent this. Wyden was not convinced.
“I think the greatest travesty for this country is that we don’t even have an energy policy,” Olympia J. Snowe (R-Me.) observed. “I don’t know how many crises have to occur to prompt a president and Congress to develop one. We hold multiple hearings, but they don’t result in any action. We’ve let down the American people.” Congress should examine all the federal tax code’s incentives, she continued. “Frankly, a lot of them have been put on cruise control, and I hope we hold more hearings about them,” she said. “The real issue is the effectiveness of the incentives we provide your industry and what they provide the American consumer.”
Contact Nick Snow at email@example.com.