But the oil executives denounced efforts to eliminate tax benefits for the petroleum industry, saying that if Congress wants to boost revenue and lower gasoline prices, it should open up more federal land and waters for exploration to generate more production, taxes and royalty payments.
“Tax increases on the oil and gas industry — which will result if you change long-standing provisions in the U.S. tax code — will hinder development of energy supplies needed to moderate rising energy prices,” Chevron chief executive John Watson said. “It will also mean fewer dollars to state and federal treasuries ... and fewer jobs — all at a time when our economic recovery remains fragile.”
ConocoPhillips chief executive James Mulva said: “We have shackles on us. Put us back to work.”
But several lawmakers, including Sen. Olympia J. Snowe (R-Maine), questioned whether high crude oil prices provide companies with ample incentive to develop resources.
Exxon Mobil chief executive Rex Tillerson said the cost of finding new oil is about $60 to $70 a barrel, an estimate three to five times as high as what oil experts say firms pay to discover and develop new reserves in areas such as the Gulf of Mexico. Tillerson cautioned that because of increasing costs, that figure would rise.
Lawmakers stressed that budget pressures necessitate a tough look at the companies’ tax treatment. President Obama has proposed limiting or cutting provisions that he said would save about $40 billion over 10 years. They include a tax break shared by all manufacturers, the oil depletion allowance (for which the biggest oil companies no longer qualify), and other provisions for the expensing and depreciation of drilling costs.
“These tax breaks have not moved us toward energy independence,” Baucus said.
“You’re deeply out of touch,” Sen. John D. Rockefeller IV (D-W.Va.) told the executives.
Noting the deep cuts in a budget proposed by Rep. Paul Ryan (R-Wis.) and meetings with Obama on how to narrow the deficit, Rockefeller said: “All kinds of things are going to take enormous hits, while you’re not. We’re kind of terrified up here.”
Exxon’s Tillerson replied: “I want to assure you I’m not out of touch.” He said that between 2005 and 2010, Exxon Mobil paid an average of 32 percent in U.S. income taxes and that a tax increase would alter investment decisions, possibly pushing investments to other nations. Tax experts noted that the tax rate was based on income already reduced by deductions and credits.
Tillerson said that if Congress wanted to eliminate the biggest of the tax measures, one that effectively cuts the corporate income tax rate by two to three percentage points, it should do so for all industries, not just the oil industry.
Earlier, he said in prepared testimony: “Why should an American refinery worker employed by a major U.S. oil and gas company in Billings, Montana, be treated as inferior to an American movie producer in Hollywood, an American newspaper worker in New York, or an employee at a foreign-owned refinery in Lemont, Illinois?”
Baucus noted that the manufacturers’ tax break replaced an earlier tax measure that was more targeted and excluded the oil industry. But when the earlier measure was found to violate World Trade Organization agreements, Congress broadened the tax break to cover oil and other companies.
Some exchanges grew heated. Sens. Charles E. Schumer (D-N.Y.) and Robert Menendez (D-N.J.) tried to extract an apology from Mulva for a press release titled “ConocoPhillips Highlights Solid Results and Raises Concerns Over Un-American Tax Proposals at Annual Meeting of Shareholders.”
Mulva responded that “nothing was intended personally” but would not apologize or retract the “un-American” characterization.
“I think that’s beyond the pale,” Menendez said.
Sen. Orrin Hatch (Utah), the committee’s ranking Republican, accused Democrats of seeking to “score a few cheap points against oil companies.”
As the hearing ended, Baucus said, “This is not fun stuff.” He said Gene Sperling, head of Obama’s National Economic Council, had gone through a list of possible budget cuts. “The issue I see is who shares, and how much does each sector share?” Baucus said.