Saturday, May 21, 2011

Congressmen still looking to close big oil tax loopholes

Washington – Undeterred by a failure to close big oil tax loopholes in Senate legislation, last week a liberal congressman introduced new legislation that would eliminate 9 forms of tax subsidy for petroleum producers.

Representative Gerry Connolly, a Democrat from a Washington, D.C., suburb, Virginia's 11th District in Fairfax County, proposes to provide each American driver an estimated $185 in relief by taking away $37 billion in tax deductions allowed oil companies under the present IRS Code.

Senate Republicans with the help of Democratic crossover votes blocked a procedural vote to bring the Close Big Oil Tax Loopholes Act to a vote 52 to 48, 8 votes short of the 60 required. The measure would have returned an estimated $2 billion per year to the tax coffers.

Those loopholes were added to the tax code when the price of crude was $17 per barrel, said Oregon Senator Jeff Merkley.

“Times have changed - the price of a barrel has jumped to around $100 and the most profitable big oil companies are pulling in $5 million in profits every hour,” he said. “They don't need additional taxpayer giveawways to stay afloat.”

In a press release, Conoco/Phillips CEO James Mulva called the measure and those Senators who supported it “unAmerican.” The Chief sponsor of the bill, Robert Menendez, D-NJ, took great umbrage at the statement while Minority Leader Mitch McConnell, R-KY, called the bill nothing more than a smoke screen thrown up by Democrats to hide the fact that they have no plan to lower gasoline prices.

Chief complaint against tax deductions granted big oil producers is the practice of allowing them to claim royalties paid to foreign governments as taxes, thus allowing a deduction from their corporate pre-tax income.

Tax expenditures are defined by Administration executives and liberal Congressmen as government spending programs implemented through provisions of the tax code – subsidies for certain industries through a direct tax break that substantially lowers the cost of doing business.

Under the provisions of Mr. Connolly's bill, HR 1813, oil companies would lose such “tax expenditures” as these:

1. Intangible drilling costs such as wages, fuel, repairs, hauling, and supplies. Other companies must recover those costs over the life of the investment.
2. Deduction for tertiary injectants used to enhance oil recovery in such workover techniques as fracturing.
3. Depletion tax allowance of 15 percent of revenue derived from a well, even if that exceeds the well's total value.
4. Passive investments such as renting land – an estimated tax saving of about $180 million over 10 years.
5. Domestic manufacturing tax deduction for petroleum products produced in the U.S.
6. Geological and geophysical expenditures deduction of 9% of income, elimination of which would save taxpayers about $17.3 billion over 10 years.
7. Foreign tax credit claimed by companies in spite of the fact that they pay no foreign income taxes abroad, but call royalties paid a tax instead.
8. Enhanced oil recovery credit of 15% when using enhanced oil recovery techniques in domestic production when per barrel prices are less than $28.
9. Marginal well production for heavy oil within statutory limits.

Political pollsters are watching closely to see if Republicans who support the continued tax subsidies to oil companies suffer in approval ratings among senior citizens who will be hard hit by proposed cuts to such entitlement programs as Medicare program and Social Security, both of which are supported by payroll tax contributions.

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