President Obama touched off the latest flurry with a letter to Congressional leaders last week calling for the repeal of $4 billion a year in tax incentives for domestic oil and gas production, saying the industry was doing very well, thank you, and needed no help from the government. Republicans responded that the president’s proposal would only raise the cost of production and the price of gasoline, which now tops $4 a gallon in many parts of the country.
Both parties are planning legislative maneuvers this week to try to caricature their opponents as either in the pockets of the oil companies or hostile to domestic energy production.
The debate may generate a fair amount of noise that provides one side or the other with a temporary political advantage but is unlikely in the end to have an appreciable impact on gasoline prices.
“Every time Americans have to shell out $60 or $80 to fill their tanks, they mutter under their breaths about government and it puts pressure on Congress and the White House to do something,” said Byron L. Dorgan, the former Democratic senator from North Dakota who is now co-chairman of an energy project at the Bipartisan Policy Center in Washington. “But it’s just howling at the moon. The basic laws of supply and demand haven’t changed.”
House Speaker John Boehner unwittingly gave the Democrats a political opening to pile on the oil companies by saying in an interview with ABC News last week that oil companies should “pay their fair share in taxes” and that Congress ought to reconsider some of the tax incentives they enjoy. He has since walked away from those remarks and said that raising any taxes would choke off the economic recovery and lead to higher prices of gasoline and other goods.
His comments came as lawmakers from both parties were home on recess, hearing a torrent of constituent complaints about the high cost of gasoline at the same time major oil companies were reporting near-record quarterly profits. Exxon Mobil, the world’s largest oil company, said it earned $10.7 billion in the first three months of the year, and other companies reported similarly robust earnings.
Mr. Obama seized on the opportunity to try to deflect some of the heat he has been feeling as gas prices have steadily climbed. He noted wryly at a political fund-raiser last weekend that his poll numbers tend to go up and down with pump prices, even as he admitted he had no “silver bullet” to bring those prices down in the short term. But he found ammunition in the tax breaks the oil industry has enjoyed for decades, portraying the industry as undeserving of them at a time when government needs all the revenue it can get.
“As we work together to reduce our deficits,” Mr. Obama said in a letter to Congressional leaders last week, “we simply can’t afford these wasteful subsidies.” Mr. Obama says the money saved should be used to finance more research into clean energy alternatives — a proposal he has made in his last two budget requests that has largely been ignored.
“The odds are low that the tax repeal goes through as a stand-alone measure, but you might see it as part of a broader deal,” said Michael A. Levi, an energy and environment specialist at the Council on Foreign Relations. He said it was in Mr. Obama’s interest to keep the issue alive both to align Republicans with the unpopular oil companies and to use as leverage as new budget negotiations begin.
Harry Reid, the Senate Democratic leader, said he would press for a vote as early as next week on repealing the tax subsidies. Democrats hope to paint Republicans who vote against the plan as tools of the industry.
“Now is not the time to stand idly by while large oil and gas companies get billions of dollars in tax breaks,” said Senator Max Baucus, Democrat of Montana and chairman of the finance committee. “Now is the time to take concrete steps toward cleaner, more affordable, domestically produced energy.”
The measure could well pass in the Democratic Senate, although some Democrats from oil-producing states, like Mary Landrieu of Louisiana and Mark Begich of Alaska, are likely to oppose it.
But it has little chance of even coming to a vote in the Republican-run House, where Speaker Boehner is orchestrating a fresh chorus of “drill, baby, drill” with a series of votes on bills to allow new oil and gas exploration in the Gulf of Mexico and off the coast of Virginia.
“Our goal is to expand the supply of American energy to lower gas prices and create jobs,” said Michael Steel, spokesman for Mr. Boehner. “Raising taxes would have the opposite effect.”
Neither the Senate tax measure nor the House drilling bills is likely to become law because of the fierce partisan calculus of the current Congress. But some Republicans, including Representative Paul Ryan of Wisconsin, the party’s leader on budget matters, have left open the door for rethinking a range of government tax breaks as part of an agreement on the federal budget and deficit ceiling.
Some conservatives oppose energy subsidies of all sorts — including those for ethanol, wind, nuclear and solar power — and would be willing to see them all repealed as part of a reform of the business tax code.
Oil industry tax breaks — some of them dating back a century — have been debated for years but have survived every elimination attempt. According to a breakdown by the nonpartisan Joint Committee on Taxation, oil companies receive about $4 billion a year in federal subsidies and can avail themselves of tax breaks at virtually every stage of the prospecting and drilling process.
One lingering provision from the Tariff Act of 1913 — enacted to encourage exploration at a time when drilling often led to dry holes — allows many small and midsize oil companies to claim deductions for tapped oil fields far beyond the amount the companies actually paid for them.
Another subsidy, devised by the State Department in the 1950s, allows U.S.-based oil companies to reclassify the royalties they are charged by foreign governments as taxes — which can be deducted dollar-for-dollar from their domestic tax bill. That provision alone will cost the federal government $8.2 billion over the next decade, according to the Treasury department.
David Kocieniewski contributed reporting from New York.
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