House Votes to End Big Oil's Tax Breaks

By Steven Mufson
Washington Post Staff Writer
Thursday, February 28, 2008

The House of Representatives brushed aside threats of a White House veto yesterday and voted 236 to 182 in favor of an $18 billion tax package that would rescind a tax break for the five biggest oil companies and use the revenue to boost incentives for wind and solar energy and energy efficiency.

The measure now heads to the Senate, where Democrats face a challenge in getting enough support to bring the bill to a vote. This is the fourth time in the past year that Democrats have tried to get the package adopted.

The Bush administration, Republican lawmakers and big oil companies condemned the bill, which they said would raise fuel prices for consumers, discourage oil and gas exploration in the United States and unfairly discriminate against a single industry while other manufacturers continue to enjoy tax breaks.

But hours after crude oil hit a new high of $102 a barrel on the New York Mercantile Exchange, most lawmakers said they saw no reason why the oil industry couldn't pay an additional $1.8 billion a year in taxes over the next 10 years.

"We don't think it's asking too much to ask them to assist in a partnership to help find out whether there's a better way to meet our energy needs," said Charles B. Rangel (D-N.Y.), chairman of the House Ways and Means Committee. He called the money raised from the oil giants "grains of sand on the beach."

Supporters of the measure noted that rescinded tax breaks would amount to less than 2 percent of the profits of the five biggest oil companies. Even if the companies were to pass along that entire cost to gasoline consumers, it would amount to about a penny a gallon.

Rep. Rahm Emmanuel (D-Ill.) said "Americans are being asked to pay twice" -- once at the gasoline pump and then through tax subsidies to the oil companies.

However, Rep. Kevin Brady (R-Tex.) said that "politicians are shooting at Big Oil but hitting Americans" in their wallets.

Supporters of the measure also said that by extending tax breaks for wind and solar energy, the bill would prevent the loss of jobs linked to those fast-growing industries. Solar and wind energy companies have been arguing that investment would slow sharply without an extension of investment and production tax breaks for their industries, which are set to expire at the end of the year. House Speaker Nancy Pelosi (D-Calif.) issued a statement saying that 116,000 jobs were at risk.

Republicans mostly supported the bill's renewable energy provisions, worth about $8 billion.

But at the heart of the floor debate was a provision to exclude oil and gas companies from a tax break given to U.S. manufacturers in 2004. Two years earlier, Congress had given a subsidy to manufacturers -- not including the oil industry. When the World Trade Organization ruled that the subsidy was a violation of trade accords, Congress instead came up with a provision that effectively lowered the corporate tax rate from 35 percent to 32 percent over a number of years. In addition to the traditional manufacturers that would have received the earlier subsidy, the new tax break was extended to Hollywood studios, architectural and engineering firms, and oil and gas companies.

The current bill raises $13 billion by eliminating that manufacturers' tax break for the five biggest oil companies: Exxon Mobil, Chevron, ConocoPhillips, BP and Royal Dutch Shell.

"The administration must strongly oppose" the legislation, the Office of Management and Budget said Tuesday, "because the bill would use the tax code to target tax increases on a specific industry in a way that will lead to higher energy costs to U.S. consumers and businesses." The OMB said that if the bill were sent to the president in its current form, "his senior advisors would recommend that he veto the bill."

If adopted and signed into law, the legislation would also raise about $3 billion by altering the treatment of foreign tax credits for oil companies. It would close the so-called Hummer loophole that gives tax breaks on sports-utility vehicles bought for business purposes.

To spur renewable energy, the bill would extend the production tax credit, now 2 cents a kilowatt hour, for wind for three years; after 2009, tax credits would not be able to exceed 35 percent of the value of a wind project.

The 30 percent investment tax credit for solar projects would be extended eight years for commercial customers and six years for residential customers. The current maximum credit for homeowners would be doubled to $4,000.

The legislation would also channel $2 billion into clean renewable energy bonds, which would help finance renewable energy investments by the country's politically powerful rural electric cooperatives. The bill would also expand tax credits for the installation of pumps for motor fuel with 85 percent ethanol and for purchases of plug-in hybrid vehicles.

The Bush administration called the clean energy bonds "highly inefficient" and said they could cost the federal government money outside the 10-year budget window.

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