Senate Democrats target biggest oil firms with tax hikes
US Senate Democrats announced a bill on May 10 that would increase federal taxes for the nation’s five biggest oil companies by eliminating several key deductions.
OGJ Washington Editor
WASHINGTON, DC, May 11 -- US Senate Democrats announced a bill on May 10 that would increase federal taxes for the nation’s five biggest oil companies by eliminating several key deductions. They said the measure would close a major loophole at a time when the companies were making massive profits. Oil and gas companies and industry groups immediately condemned the idea as a major mistake.
Enactment of the bill would recover $21 billion over 10 years to help reduce the federal budget deficit, Sens. Robert Menendez (NJ), Sherrod Brown (Ohio), Claire McCaskill (Mo.), and Jon Tester (Mont.) said as they announced their bill. “The ‘Close Big Oil Tax Loopholes Act’ is based on a simple premise: We need everyone to do their share to lower the deficit, not just working families and the elderly,” Menendez said.
“There’s clear waste in the federal budget and the tax code. And then there’s Big Oil,” Senate Majority Leader Harry M. Reid (Nev.) said in a separate statement. “We’re giving billions and billions of dollars every year—$4 billion to be exact, every cent of it taxpayer money—to oil companies that already are more than successful.”
He said the five companies toward which the bill is aimed—BP PLC, Chevron Corp., ConocoPhillips, ExxonMobil Corp., and Royal Dutch Shell PLC—made $36 billion in profits during this year’s first quarter. “Yet the US government is giving these companies $4 billion/year in corporate welfare,” Reid declared.
“Why are taxpayers on the hook for oil companies that are doing just fine on their own?” Reid continued, adding, “If we’re serious about reducing the deficit, this is an easy place to start. It’s a no-brainer. Let’s use the savings from these taxpayer giveaways to drive down the deficit, not drive up oil company profits.”
Oil and gas companies and industry associations immediately condemned the proposal. American Petroleum Institute Pres. Jack N. Gerard called it “a vindictive money grab [that] could put more people out of work across America, damage our nation’s energy security, raise energy costs, and ultimately drive up deficits.
“The US oil and natural gas industry pays many billions of dollars a year in taxes at some of the highest effective rates around, but those addicted to tax hikes demand more, seemingly oblivious to the risks to our struggling economy,” Gerard continued in a May 11 statement. “The tax increase proposed would do nothing to reduce gasoline prices. Let’s be honest: Raising taxes on one of the nation’s biggest and steadiest employers when the unemployment numbers are rising is as mind-boggling as it is reckless.”
Executives of the five companies are scheduled to testify about the proposal before the Senate Finance Committee on May 12. But several issued statements opposing the idea on May 11. “Our industry already has the highest effective tax rate in the United States,” said ConocoPhillips Chief Executive Officer James J. Mulva. “Increasing these taxes would cost jobs and raise gasoline and other consumer prices, while actually unintentionally reducing the government’s tax revenue by discouraging investment by the industry’s largest and most financially capable companies.”
Mulva said the oil and gas industry already is taxed heavily compared to other US businesses. “For example, ConocoPhillips’s effective global income tax rate from 2006 through 2010 was 46%. If you look at nonfinancial companies in the Fortune 500, the 20 largest by market value had an effective tax rate of 27%,” Mulva said. In 2010, he continued, ConocoPhillips’s taxes ($8.3 billion in income taxes and $3.1 billion in non-income taxes) equaled its $11.4 billion of income.
A better approach
“Obviously, we think opening America’s energy resources for development would be a better approach,” an ExxonMobil spokesman said on May 11. “It would put downward pressure on prices, create American jobs, and produce billions of dollars in revenue. These tax proposals which are aimed at the top five oil companies aren’t logical. From a profit margin basis, we’re not the most profitable in the United States. We’re also one of the most heavily taxed US industries with about a 32% income tax rate.”
The spokesman noted that oil and gas companies already get a lower rate—6% compared with 9% for other US manufacturers—under the Section 199 tax deduction which the bill eliminate for the oil and gas industry. “We have a difficult time understanding why a tax measure put in place to protect jobs would discriminate against a particular industry. A job is a job,” the ExxonMobil spokesman told OGJ.
Menendez, Brown, McKaskill, and Tester said on May 10 that their bill also would modify foreign tax credit rules applicable to the five companies that are dual capacity taxpayers, require them to capitalize all of their intangible drilling costs by eliminating their current 70% deduction, repeal their percentage depletion allowance, require them to capitalize their tertiary injectant costs and recover them over time instead of deducting the expenses, and repeal deepwater and deep gas royalty relief provisions in the 2005 Energy Policy Act.
“If we are going to get serious about addressing our national debt, we can no longer afford to keep giving away taxpayer's money to the most profitable companies in the world,” McCaskill said. “There are going to be some tough decisions when it comes to cutting back, but I hope we can agree that our government writing checks to oil and gas companies with tax dollars should be on the chopping block.”
“We should be putting more people to work producing more of the oil and natural gas we use,” API’s Gerard suggested on May 11. “That would increase revenue, grow our economy, and strengthen our energy security.”
Contact Nick Snow at firstname.lastname@example.org.