WASHINGTON -- Major oil companies on Wednesday launched broadsides against Democratic plans to pare back some of their tax breaks, saying the measure was "un-American" and would only push up already high retail gasoline prices, said Reuters. A day before the top executives of the five biggest firms were to appear before the Senate Committee on Finance for a hearing entitled Oil & Gas Tax Incentives & Rising Energy Prices (click here for details, including [image-nocss] video and prepared testimony), the companies and lawmakers traded barbs over the Democratic effort to kill the tax breaks that senators say could cut the deficit by about $21 billion over a decade.
Senate Majority Leader Harry Reid (D-Nev.) has said he hopes the tax bill will be voted on in the full chamber next week.
Eliminating the tax breaks has been a goal of President Barack Obama and the call by lawmakers has become louder with stubbornly high fuel prices ahead of next year's elections. But the effort will face fierce opposition by Republicans and some Democrats who fear it could send gasoline prices higher.
Senators who sponsored the bill said the companies needed to do their part to cut the deficit and they could afford to give up the tax breaks. "We're here to say 'enough already' to Big Oil. You're doing fine enough on your own," said Senator Charles Schumer (D-N.Y.), standing at a Washington gas station where prices started at about $4.30 a gallon.
"Right now people are paying as much for gas as they're paying for healthcare and groceries," said Sen. Debbie Stabenow (D-Mich.). "Now's the time to take away subsidies."
Politicians around the country have been holding press conferences, mostly at gas stations, decrying high gasoline prices and oil company profits.
But Republicans said eliminating the subsidies would act as a tax that the oil companies would pass onto consumers by pushing up fuel prices.
ConocoPhillips, one of the five oil companies that will testify called the tax proposals "un-American," angering the bill's main sponsor, Sen. Robert Menendez (D-N.J.), who demanded the company apologize at Thursday's hearing.
Conoco said the proposal unfairly singles out the five biggest oil companies for additional taxes and would cost jobs and shrink government revenue.
Oil companies, on the defensive after raking in huge profits in their first quarter, also said the consumers would pay more if they lose their drilling incentives. "Putting taxes up doesn't seem like a good way to put prices down," said Exxon spokesperson Alan Jeffers, whose CEO Rex Tillerson will testify at the hearing.
Exxon wants Congress to pass Republican bills in the House to open up offshore drilling, which they say has been mostly locked up by Obama administration rules after last year's BP oil spill.
The Republican-led House passed a bill on Wednesday requiring the Interior Department to act within 60 days on permits requested by oil and gas companies to drill on offshore federal tracts. It is one of three bills the Republicans say would boost domestic energy and government revenues. But the measures face stiff opposition in the Senate.
Jim Mulva, CEO of ConocoPhillips, agreed the tax repeal would boost fuel prices: "At a time when everyone is concerned over the cost of gasoline, Congress shouldn't do anything that could actually worsen the situation."
In addition to Tillerson and Mulva, Shell Oil Co. U.S. president Marvin Odum, BP America chairman Lamar McKay and Chevron CEO John Watson will testify.
Reid and Menendez, sponsor of the bill, sent Republicans a letter urging them to support the legislation, said Reuters. "If we are to truly address our national debt, we will all have to tighten our belts and make sacrifices--even the most wealthy and powerful among us," the letter said.
Senate Finance Committee chairman Max Baucus (D-Mont.) called the officials to testify today, said a Bloomberg report.
Baucus proposed on April 28 ending billions of dollars in tax breaks for multinational oil and gas companies at a time of high industry profits and gasoline prices. "Now is not the time to stand idly by while large oil and gas companies get billions of dollars in tax breaks," Baucus said in a statement announcing the plan.
Senate Democrats said they will seek to repeal about $21 billion in tax breaks in the next 10 years. The Democrats propose using the revenue for deficit reduction.
Republican lawmakers and oil company spokesmen have said ending the tax benefits will backfire, producing higher prices and less supply. "Discriminatory taxes would put U.S.-based energy companies at a competitive disadvantage around the world and discourage development of domestic oil and gas resources," Lloyd Avram, a Chevron spokesperson, told the news agency.
In a statement, Mulva said that he expects to describe to committee members how misinformation about the industry's tax liabilities is being used to justify proposed tax increases.
"Our industry already has the highest effective tax rate in the United States," said 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 added that the proposal would impede the industry's ability to reinvest not only in the oil and natural gas needed to power the economy today, but also in new energy technologies and resources that will be essential in the future.
"Our industry and company are already taxed heavily compared to other industries in the United States," Mulva said. "For example, ConocoPhillips' effective global income tax rate from 2006 through 2010 was 46%. If you look at non-financial companies in the Fortune 500, the 20 largest by market value had an effective tax rate of 27%."
That tax rate already limits the company's ability to invest in finding and recovering energy reserves. In 2010, the company's payout was equal to its income: After paying $8.3 billion in income taxes--as well as $3.1 billion in other non-income taxes--ConocoPhillips earned $11.4 billion in income.
Proposals to repeal the Section 199 domestic manufacturing deduction for the five largest oil companies would discriminatorily deny them a tax deduction available to every other manufacturing industry, as well as to large oil companies outside the top five. This tax deduction was enacted by Congress in 2004 to stimulate job growth in the production and manufacturing sector, which in turn, encouraged more domestic energy production.
"The oil and natural gas industry supports 9.1 million jobs in the United States, a fact that is too often overlooked," said Mulva. "Also, taxes are included in gasoline prices. At a time when everyone is concerned over the cost of gasoline, Congress shouldn't do anything that could actually worsen the situation."
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