GOP Blocks Measures Boosting Taxes on Oil Companies' Profits
Wednesday, April 26, 2006
While Republican leaders sharply criticize soaring gasoline prices and energy industry profits, GOP negotiators have decided to knock out provisions in a major tax bill that would force the oil companies to pay billions of dollars more in taxes on their profits.
House and Senate tax writers have been struggling to reach an accord on separate tax bills approved last year to extend some expiring tax cuts enacted during President Bush's first term. But House Republicans have raised strong objections to Senate-passed provisions that would raise nearly $5 billion in taxes over five years -- primarily by changing arcane accounting rules that have allowed oil companies to substantially lower their tax bills, according to House and Senate tax aides familiar with the talks.
The actions of Republicans hashing out a tax bill behind closed doors indicate that, despite tough talk from the White House and Capitol Hill, the party is not ready to hit the oil companies hard -- even on measures that have broad support in the Senate.
House Majority Leader John A. Boehner (R-Ohio) made it clear yesterday that the leadership would only go so far in punishing an industry enjoying record-breaking profits if that punishment could have broader negative consequences. In January, Exxon Mobil Corp. alone reported the highest corporate profit in U.S. history: $10.71 billion for the fourth quarter of 2005 and $36.13 billion for the entire year.
"The windfall profits [tax], when it was tried in the '80s, failed miserably because it led to less discovery. It led to less production and was a failure," Boehner said. "There is no reason for us . . . to go there again."
Since Congress returned to Washington this week, lawmakers under pressure from angry constituents have threatened to take action against the oil companies. With crude oil prices well over $70 a barrel, Sens. Byron L. Dorgan (D-N.D.) and Christopher J. Dodd (D-Conn.) vowed yesterday to push for a vote in the coming days on a 50 percent excise tax on profits on oil selling for more than $50 a barrel. Sen. Arlen Specter (R-Pa.) has suggested a similar tack.
Even Bush called on Congress yesterday to temper one small provision in last year's energy bill that offered oil companies a quick tax write-off of the costs of oil exploration.
"Record oil prices and large cash flows also mean that Congress has got to understand that these energy companies don't need unnecessary tax breaks like the write-offs of certain geological and geophysical expenditures," he said .
But in the closed-door talks on tax legislation, there has been no such sentiment in dealing with two of the three Senate provisions that would boost federal taxes on the oil industry.
The biggest of the provisions would change accounting rules that apply to oil in storage. Currently, oil companies are allowed to calculate the taxable value of their inventories based on the value of the oldest stocks, when oil may have been worth $30 a barrel. But much of the inventory may have been pumped from the ground when oil was selling for more than double that. Critics say that understates the value of the companies' oil supplies purely to lower their tax payments.
Another would prevent oil companies from deducting from their U.S. taxes the royalties paid to foreign governments.
The third, which would repeal the provision in last year's energy law allowing companies to write off in two years the cost of geological exploration, received new life after Bush's speech, Senate tax aides said.
Those measures were first proposed by Sen. Olympia J. Snowe (R-Maine) to pay for a $500 tax credit to defray home energy costs. In letters to Senate Majority Leader Bill Frist (R-Tenn.) and House Speaker J. Dennis Hastert (R-Ill.), Snowe suggested yesterday that the Senate oil tax measures be taken out of the broader tax bills and passed separately to pay for alternative-energy development.
But the Bush administration has strongly opposed Snowe's measures from the start, especially the accounting change, which would hit the five major oil companies to the tune of $4.3 billion in two years. In letters to Congress on Feb. 23, Treasury Secretary John W. Snow used underscored text to stress that "the President's senior advisors would recommend that the President veto the legislation if this provision remains."
The tax change Bush spoke of yesterday is less dramatic than it may seem, oil industry tax analysts said. The Senate had hoped to repeal the quick write-off of exploration costs, but Bush merely wants to stretch it out from two years to five years, as proposed in his February budget plan, according to Mark Kibbe, senior tax policy analyst with the American Petroleum Institute.
"We would not necessarily be opposed to that at all," Kibbe said.