Democrats' deficit-cutting plan: Big Oil subsidies the first target

Senate Democrats launched an assault on tax breaks for Big Oil on Tuesday in what has become a ritual in a closely divided Congress. But this time the target isn’t just Big Oil but also big deficits.

The targeted tax breaks for the top five oil companies – Exxon Mobil Corp., Royal Dutch Shell, BP, Chevron Corp., and Conoco Phillips – account for about $21 billion in taxpayer subsidies over 10 years, or $2 billion a year. The billions that Democrats expect the US government to recoup by zeroing out various tax breaks would go to relieving the nation’s budgetary shortfall.

“If we cannot end subsidies to the five biggest, most profitable corporations in the history of the planet, that come from the federal taxpayers, then I don't think anyone should take us seriously about deficit reduction,” said Sen. Claire McCaskill (D) of Missouri at a briefing with reporters on Tuesday. Other sponsors include Sen. Robert Menendez (D) of New Jersey and Sen. Sherrod Brown (D) of Ohio. All are up for reelection in 2012.

Sen. Max Baucus (D) of Montana, who chairs the Senate Finance Committee, is also developing legislation to trim tax breaks for oil companies, but he plans to redirect the taxpayer savings to encourage clean-energy sources.

"These oil companies made $36 billion in profits during the first quarter of this year,” said Senate majority leader Harry Reid in a floor speech on Tuesday. “And yet the US government has given these companies billions of dollars in corporate welfare every year. If we’re serious about reducing the deficit, what an easy place to start.”

House Speaker John Boehner (R) laid down a marker in negotiations with Senate Democrats and the White House on Monday when he called for trillions in spending cuts to accompany any vote to raise the national debt limit – now set to expire in mid-May, forcing a default by Aug. 2 unless Congress acts. Mr. Boehner says everything is on the table toward meeting that target, except tax increases.

Senator Reid says the Senate will, every day this week, propose measures to cut the deficit. Another factor pressing Democrats to act is the rise of gasoline prices, nearing $5 a gallon in some states.

A vote to end certain tax breaks for the oil industry also would challenge Republicans to reconsider their refusal to put taxes on the table. Sen. Charles Schumer (D) of New York says tax breaks for big oil companies can’t be justified in this climate, and he called on Republicans to break their “no tax increase” pledge.

“It’s a perfect way to start off this debate and show some goodwill: Democrats have agreed to cuts, lots of cuts. People on the other side of the aisle can show some agreement on revenues,” he said in a floor speech on Tuesday.

The oil industry is a popular target. “Oil companies score at the near bottom of nearly every industry group we track,” says Frank Newport, editor in chief of the Gallup poll in Princeton, N.J. “They’re among the least liked corporations in America.”

Republicans counter that ending tax breaks for oil companies will force domestic producers to raise gasoline prices. The bill effectively raises taxes on domestic producers, not state-owned foreign companies, says Sen. John Cornyn (R) of Texas. “The only option will be for US companies to pass along prices at the pump,” he adds. “The only solution [to higher gas prices] is to raise domestic production here, which the [Obama] administration appears to be doing everything it can to impede.”

Oil and gas companies are among the strongest political lobbies on Capitol Hill. Together, they have contributed some $238.7 million to federal political candidates and parties since 1990, 75 percent of which has gone to Republicans, according to the Center for Responsive Politics in Washington.

From 1916 through 1970, federal energy policy focused almost exclusively on increasing domestic oil and gas reserves and production, according to a May 2 report on Energy Tax Policy by the Congressional Research Service.

Under pressure from budget deficits, an oil embargo, and an energy crisis in the early 1970s, Congress shifted tax policy away from oil and gas toward the development of alternative fuels. President George H.W. Bush presided over the first tax credit for ethanol producers. By 2010, the cost of tax breaks for renewables exceeded the cost of tax breaks associated with fossil fuels.