Windfall Tax Picks Up Intensity

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WASHINGTON -- The U.S. Senate Finance Committee voted on Tuesday to impose a $5 billion tax next year on Major Oil, reported the New York Times.

The measure amounts to a one-year windfall profits tax, a concept that most Republicans had until recently denounced as a discredited idea from the 1970s, said the report. It was added to a larger bill that would cut taxes by about $61 billion over the next five years.

Conservative Senate Republicans who support the oil industry bitterly protested the measure, noting that Congress had [image-nocss] just approved billions in new tax breaks to encourage oil and gas exploration. But every Republican voted for the overall package, which passed the committee 14 to 8 and which the full Senate is expected to take up on Wednesday.

Five of the largest oil companies recently reported that their combined profits for the third quarter rose to $33 billion as a result of rising oil prices. As reported in CSP Daily News, top oil executives testified last week at a congressional hearing, defending their record results.

Lawmakers have urged the oil companies to give up some of their profits and have raised the idea of a windfall profit tax. But party leaders and the White House have firmly opposed such a move, the report said. Many Senate Republicans are counting on their counterparts in the House to reverse the tax on oil companies and add back an extension of tax cuts.

The Senate bill was a setback for President Bush because it omits one of his most cherished tax priorities: an extension of his 2001 tax cuts on stock dividends and capital gains. Those tax cuts expire at the end of 2008, and Republican leaders badly wanted to pass at least a one-year extension this year at a cost of about $11 billion. But Republican moderates rebelled at the idea of cutting taxes for investors at the same time they were voting on spending cuts for food stamps, Medicaid and programs to enforce payment of child support, the report said.

Senate Republicans refused to call their provision a windfall profits tax, a tax that was imposed after oil companies enjoyed a similar spike in profits in the early 1970s. Critics of the windfall profits tax contended that it merely discouraged production and contributed to severe gasoline shortages and long waiting lines, said the report.

The provision, drafted by Senator Charles E. Grassley (R-Iowa) and chairman of the Senate Finance Committee, would require major integrated oil companies to revise the way they account for oil inventories next year. Under current law, if an oil company increases its inventories, it can book that increase as a cost against profits and value the new oil at current market prices. If oil prices shoot up, as they did this year, this approach allows big oil companies to increase their costs and reduce their taxable income by hundreds of millions of dollars each.

Conservative Republicans on the Senate tax-writing committee complained bitterly about the measure, the report said. We can't just penalize these companies with an accounting gimmick, right at the same time that we're trying to give them incentives for investing in new facilities, said Sen. James Bunning (R-Ky.). Sen. Craig Thomas (R-Wyo.), charged that his Republican colleagues were undermining the energy policy that we have been working on for years and would discourage exploration and production. I suppose it's because you found out that energy companies are making some money.

Grassley agreed to consider refinements to the bill before the full Senate took it up on Wednesday.

Democratic lawmakers were elated, though most Democrats on the committee still voted against the overall package on the ground that it would increase the budget deficit. Senators Ron Wyden (D-Ore.) and Charles Schumer (D-N.Y.) had proposed an amendment that would eliminate billions of dollars in tax breaks for energy companies that Congress passed recently.

It defies common sense for the Congress to be shoveling tax breaks at big oil companies when even the executives say they aren't needed, said Wyden. The laws don't restrict tax breaks to the producersthey apply to everybody. So today's modest action starts the long march to start to reform the tax breaks as they relate to the oil industry, and limits these incentives to the smaller oil companies that actually need the help the most.

But they withdrew their amendment after receiving assurances from Grassley that he would look at striking $1 billion worth of tax breaks aimed at oil exploration.

Meanwhile, a White House document shows that Major Oil executives met with Vice President Dick Cheney's energy task force in 2001, which has been suspected by environmentalists, but denied as recently as last week by industry officials testifying before Congress, said the Washington Post.

The document, obtained by the newspaper, shows officials from ExxonMobil, Conoco (pre-Phillips), Shell and BP met in the White House complex with Cheney aides who were developing a national energy policy, parts of which became law and parts of which are still being debated. Chevron was not named, but the Government Accountability Office has found that it was one of several companies that gave detailed energy policy recommendations to the task force.

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