Senate Finance Committee proposes several new oil taxes
The US Senate Finance Committee proposed new taxes for the oil industry as offsets to incentives for alternative fuels and renewable energy research and development.
WASHINGTON, DC, June 20 -- The US Senate Finance Committee proposed new taxes for the oil industry as offsets to incentives for alternative fuels and renewable energy research and development. The full Senate received the package in the early evening of June 19 as it continued debate on the Democratic leadership's energy legislation package.
The committee said its proposals included repealing the manufacturing deduction for major oil companies' domestic products, but leaving it intact for smaller independent producers. Petrochemicals, medicine, insecticides, and alcohols would be excluded. This would raise an estimated $9.433 billion over 10 years, the committee said.
It also proposed the following:
-- Eliminating the distinction between foreign oil and gas extraction income and foreign oil and gas related income (transportation and refining) by combining the two categories and applying the existing extraction income limitation to raise an estimated $3.187 billion over 10 years.
-- Extending the oil spill liability tax through Dec. 31, 2017; raising it to 10¢/bbl from 5¢/bbl; and repealing the requirement to suspend the tax when the unobligated balance exceeds $2.7 billion, which the committee said would raise $2.76 billion over 10 years.
-- Establishing a 13% excise tax on oil and gas produced from federal leases in the Gulf of Mexico, with credit allowed for royalties paid, to raise an estimated $10.684 billion over 10 years.
-- Taxing finished gasoline at the refinery gate or on its entry into the US as an import, and eliminating the bulk transfer exception, to raise an estimated $824 million over 10 years.
"These offsets make sensible improvements to the tax code, close loopholes, and reduce fuel fraud. And contrary to some criticisms, they should not reduce oil companies' incentives to produce energy," Finance Committee Chairman Max Baucus (D-Mont.) said.
But the American Petroleum Institute said the new taxes would increase US dependence on imported oil by discouraging new domestic production, discourage investments in new refinery capacity, and lead to the loss of US jobs. "A new 'severance tax' of up to 13% on production in the Gulf of Mexico, for example, would only serve to make these extremely expensive projects less competitive with foreign oil production," API said in a statement.
Meanwhile, the Senate Appropriations Committee inserted a requirement into the US Department of Interior's fiscal 2008 budget for holders of deepwater Gulf of Mexico leases issued in 1998 and 1999 without price thresholds to renegotiate terms or be barred from future lease sales.
"For nearly a decade, an administrative error has allowed oil and gas companies to drill in federal waters for free. This has already cost taxpayers $1 billion and will cost billions more if we don't take action now," said the amendment's sponsor, Dianne Feinstein (D-Calif.).
Feinstein said the proposal in the Senate version of the Interior appropriations bill differs from a similar provision which passed the House by providing an exception for lessees who voluntarily agree to pay royalties on their 1998-99 leases.
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