Senate Vote on Bill to Raise Taxes on Oil Firms Likely to Succeed

Senate Vote on Bill to Raise Taxes on Oil Firms Likely to Succeed

WASHINGTON - Senate Republicans are expected to support a vote Monday that would allow debate to begin on a bill that would end $20 billion in subsidies paid to the five largest oil companies, a senior Republican Senate aide said.

The vote in support doesn't mean the party's lawmakers are in favor of ending the federal subsidies paid to oil and natural gas majors, but they are eager to have a debate with Democrats on energy policy, the aide said.

If the vote is successful - and with Republican support it's almost certain to be - the Senate will likely spend the next week debating U.S. energy policy.

The bill would end federal subsidies paid to the largest oil and gas companies and use the savings to renew lapsed tax credits paid to renewable energy producing firms. Those tax credits are targeted at firms involved in solar, wind and other forms of clean energy. They expired at the end of last year.

The aide said that Republicans think they can prevail in a debate on energy policy given the current high price of gasoline at the pumps. The average price of a gallon of gasoline is $3.897 according to the auto club AAA.

Republicans are likely to push for votes on measures that would seek to expedite the construction of the northern branch of the so-called Keystone pipeline, and others that would boost U.S. production of oil and natural gas.

The GOP aide said that unless the bill is substantially modified from its current form, Republicans would be unlikely to support it at final passage.

Democrats scheduled the vote hoping to highlight Republicans' insistence on continuing to back federal subsidies to the largest oil and gas companies.

"If Republicans want to take extra time explaining to the American people why they support giving taxpayer funded hand outs to oil companies making record profits, that's their prerogative," said a spokesman for Senate Majority Leader Harry Reid (D., Nev.)

Copyright (c) 2012 Dow Jones & Company, Inc.


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Mr. H. | Mar. 29, 2012
Oil was $140/barrel in July of 2008. By January, 2009 it fell to $40. It will happen again. Short-sighted policies are just that. Short-sighted. There are many industries much more profitable than O&G. Petrophobia marches on.

Ray | Mar. 27, 2012
A few details on cutting "oil industry subsidies". I know it’s an emotional subject, especially every time we fill up at the pump, but bear with me. First, I have to make some assumptions since “cutting subsidies” is meaningless unless details are presented. But from what has come out of the feds this is how it may play out. It appears the two main tax items are the DA (depletion allowance) and the IDC (intangible drilling cost) tax deduction. The DA is complicated but the basics are that a company’s assets (its reserves in the ground) decreases as the reserves are produced. Unlike an auto plant which has the potential to generate revenue indefinitely as the plant doesn’t deplete itself. But a plant’s equipment can depreciate so that’s the closest analogy. I don’t have a handle on exactly how much this saves a company but my sense is that it’s not huge. But more importantly, if the DA is eliminated it will only affect future fields…not existing ones. It is difficult to estimate if eliminating the DA will change future drilling activity. The elimination of the IDC tax credit would have a huge and immediate effect. The IDC is a significant incentive to drill. About 40% of the cost to drill a well is IC (intangible costs). The IDC allows a company to deduct that amount from the taxes owed…not the earned income. So if a company owes the feds $100 million in taxes and spends $100 million in IC it can subtract $35 million (IC X 0.35) from its taxes. Defiantly a huge break. So they only pay $65 million in taxes. But take note: the IDC doesn’t increase the company’s revenue or profits: it allows them to spend more money drilling. If they don’t spend it drilling new wells they lose it. That’s the logic behind the IDC tax credit: instead of letting the govt spend the money the oil industry gets to drill more wells. That was once considered a good thing. The effect on drilling activity: the economics of each project is evaluated on its own merits. This evaluation includes utilizing the IDC. Eliminate it and a number of projects become sub-economic and won’t be drilled. This will disappoint many but eliminating the IDC won’t diminish ExxonMobil’s profit. What it will do is eliminate a big chunk of their capex used for drilling. The money an oil company saves with the IDC doesn’t go to any owner or stockholder. It has to be spent. And it can’t be spent overseas…the law requires it to be spent domestically. So all of this subsidy goes to the service companies who drill the wells. And the more revenue flowing to these companies the more employees they hire (who then pay more taxes along with their companies). Additional drilling also means more lease bonuses and royalty to landowners (who also pay more taxes). The additional production is also taxed by the local and state authorities. Ideally if the extra capex provided by the IDC results in more production then there is an even greater revenue to tax. But this extra capex and the additional “drill, baby, drill” effort won’t diminish PO to any significant level. We all know that. But as I’ve pointed out before any increase in responsible domestic drilling and production has significant benefits to the economy. Lots of jobs, reduced trade deficit, lots of royalty income to individuals and the govt, lots of revenue to one of our few remaining profitable industries that employs millions (including many of the folks damaged by the BP spill) and can’t be outsourced. So if the public wants to eliminate these subsidies so be it. But it won’t lessen the current profits of the oil industry. It will reduce its future revenue but not necessarily its profitability. ExxonMobil’s profits will continue flowing out to its millions of shareholders (who are dominated by the country’s retirees). It will reduce the amount of money the industry rolls back into the economy. But that’s OK with the Rockman and his company…anything that reduces the competition for the little drilling potential we have left is just fine by us. I’m all for the politicians to placate the public’s anger over energy costs. In the end they’ll have to deal with the results.

Jesus A. Gutierrez | Mar. 27, 2012
good for the senate, we need down gas and diesel prices good for the country

Ron Heffernan | Mar. 27, 2012
I hope the Republicans will look into Solyndra and the other 2 solar cos that wasted $1.5 B. I hear they got a $32,000 bonus at Solyndra just 2 weeks ago. Why isn't someone going to jail instead. This will increase the price of gas at pumps.

robert christian | Mar. 27, 2012
i wish gas / petrol was under 4 $s a gallon here in the uk. its 11$ a gallon

Mark A Arceneaux | Mar. 27, 2012
Why are we using the word subsidies? Are we talking about tax breaks - tax deductions? Tax deduction and tax subside are not the same. We continue to demonize an industry that is critical to this country. Do other industries get tax subsides or tax breaks?

Richard F | Mar. 27, 2012
Is Reid saying it is best to continue to support bankrupt companies that have not proven they can exist in today's market. Just another democrat Reid throwing good money after bad. That is the reason this country is in trouble today.

James | Mar. 27, 2012
This makes a lot of sense. Take away subsidies from the companies that actually provide a product that benefits the public and give those subsidies to companies that provide a product of questionable value. How about just ending all subsidies? I could support that, but it makes no sense whatsoever to take subsides from oil companies and give them to solar, wind, and other forms of "clean" energy. This is just more crony capitalism.

gary warner | Mar. 26, 2012
Having worked for the oil companies most of my life and my father as well, I can say for sure two things will happen because of removal oil subsides. Number one higher cost to the consumer and a lot of lay off in the oil industry. Like the janitors will go first, and lots of lower ranked employs that will have a hard time finding a job. Go ahead and create more unemployment for lower case employs. GARY

Anon Y Mouse | Mar. 26, 2012
Times are changing, after all. Even the five biggest guys might have to do without subsidies, excuse me, with fewer smaller ones. R&D is where its "at" in all forms of energy. This is no political football anymore ;)


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