Prominent spokesmen for the independent oil industry, a leading proponent of pure free enterprise, told a House committee yesterday that the industry could not survive without special federal tax subsidies.
"The independent oil industry as it is known today would dry up" without tax provisions that give it well over $1 billion in tax breaks that are unavailable to its competitors, major oil companies.
On similar lines, John T. Lowery Jr. said in a prepared statement to the Ways and Means oversight subcommittee: "Lowery Oil Co. . . . cannot exist if certain tax exemptions and provisions such as the ones this subcommittee is reviewing are altered."
The oilmen received strong backing from the entire Oklahoma congressional delegation, and from oil-state representatives on the Ways and Means Committee, although the tax subsidies were eyed with considerable skepticism by the subcommittee chairman, Rep. Charles Rangel (D-N.Y.).
After listening to a day-long litany of pleas for retention of the special tax breaks, Rangel, who represents Harlem, said, "It is touching."
He suggested, to the dismay of the oilmen, that instead of tax breaks they should receive direct federal grants along the lines of a social program or the special federal support provided the Chrysler Corp. "It tax support certainly should be compared to the social services," Rangel said.
The oilmen argued that they do much more of the exploratory drilling than the major companies, and that the tax breaks are essential if the nation is to continue to develop its petroleum resources.
"Without these incentives, the industry will never attract the capital to achieve energy security," Sidney J. Jansma Jr., an oilman representing the Independent Petroleum Association of America, told the committee.
The tax breaks also were defended by J. Gregory Ballentine, deputy assistant Treasury secretary, but questioned by Alice Rivlin, director of the Congressional Budget Office and by a number of economists.
"There does not appear to be a sound argument for taxing" independent oil companies differently from major firms, Rivlin said, and "to the extent that differential tax treatment diverts capital to less efficient producers, it is not consistent with the most efficient use of our nation's resources."
She acknowledged, however, that elimination of the breaks might make it more difficult for small, independent oilmen to obtain financing and to compete with larger producers.
Since 1975, independent oilmen have gained a series of special tax breaks that are unavailable to major oil companies. These include continued use of percentage depletion, the ability to take as an expense 100 percent of intangible drilling costs and lower rates under the windfall profits tax.
Generally speaking, an independent firm is one that is involved in the production of oil, while a major company engages in production, importing, refining and retailing.
Underlying the subcommittee inquiry, however, is another factor: independent oilmen have become increasingly tied to the Republican party, helping to finance GOP challenges to Northern liberal Democrats and channeling large sums of money into the coffers of the Republican National Committee and related GOP committees.