Democrats' plan: End Big Oil's tax breaks to ease deficit

By Carl Hulse

New York Times News Service

Published: Sunday, May 8 2011 8:02 p.m. MDT

WASHINGTON — Linking two of the politically volatile issues of the moment, Senate Democrats say they will move forward this week with a plan that would eliminate tax breaks for big oil companies and divert the savings to offset the deficit.

With both high gas prices and rising federal deficits in the political spotlight, senior Democrats believe that tying the two together will put pressure on Senate Republicans to support the measure or face a difficult time explaining their opposition to voters whose family budgets are being strained by fuel prices.

President Barack Obama and some top congressional Democrats have said they want to take some of an estimated $21 billion in savings from closing the loopholes and steer it to clean energy projects. But the Senate's Democratic leadership is calculating that using it to cut the deficit instead makes it a tougher issue politically for Republicans who are trying to burnish their conservative fiscal credentials.

"Big oil certainly doesn't need the collective money of taxpayers in this country," said Sen. Robert Menendez, D-N.J., one of the authors of the legislation that Democrats intend to showcase. "This is as good a time as any in terms of pain at the pump and in revenues needed for deficit reduction."

As part of the effort to build support for the measure, the Senate Finance Committee has invited multinational oil company executives to discuss the tax subsidies and other government incentives at a hearing Thursday.

Many Republicans are certain to oppose the proposal, making it hard for Democrats to assemble the 60 votes that will be needed to break a filibuster, given the resistance from energy-state senators in their own ranks. Republicans have characterized calls by Obama and congressional Democrats to close the loopholes as backdoor tax increases that will only increase gas prices.

"Instead of returning again and again to tax hikes that increase consumers' costs, the administration and its Democrat allies in Congress should open their eyes to the vast energy resources we have right here at home and to the hundreds of thousands of jobs that opening them up could create," Sen. Mitch McConnell of Kentucky, the Republican leader, said in a statement.

Hoping to reinforce that point, House Republicans are set to approve legislation this week that would expand the coastal areas where energy companies can explore and produce oil and gas.

Democrats say they tailored their bill to make it harder for Republicans to reject after Sen. Harry Reid, the majority leader, and Menendez wrote to colleagues last week that their goal was to "proceed with a bill that maximizes our chances of garnering bipartisan appeal."

As currently crafted, the bill would apply only to what Democrats have identified as the five largest and most profitable oil companies: BP, Exxon Mobil, Shell, Chevron and Conoco Phillips. Those involved in writing the measure say they restricted it to those firms by using a definition that applies to major oil companies with certain levels of revenue. Democrats say they believe that approach thwarts Republican arguments that eliminating the tax breaks could affect more than just the major oil firms.

The proposal would end a series of tax advantages for the five companies and produce about $21 billion over 10 years.

More than $12 billion would come from eliminating a domestic manufacturing tax deduction for the big oil companies, and $6 billion would be generated by ending their deductions for taxes paid to foreign governments. Critics suggest that the companies have been able to disguise what should be foreign royalty payments as taxes to reduce their tax liability. The bill would also deny the companies the ability to deduct some intangible drilling and development costs, producing another $2 billion.

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