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Cut the Deficit By Cutting Oil Subsidies, Senate Democrats Say

Air Date: Week of

The Senate Democratic leardership wants to repeal two billion dollars worth of subsidies for the five biggest oil companies. Living on Earth's Washington Correspondent Mitra Taj reports on the opposition and efforts to make the proposal more palatable to fiscal conservatives.


GELLERMAN: Well despite record profits last year - 30 billion dollars - U.S. oil companies paid an effective tax rate of just two percent. But now prices at the pump are soaring and the nation is deep in debt, so some in Congress want to cut the billions of dollars oil companies get in federal subsidies and tax credits. The Senate Finance Committee recently invited the CEOs of the top five oil companies to Capitol Hill. Senator Chuck Schumer, Democrat from New York, quizzed ConocoPhillips CEO, Jim Mulva.

SCHUMER: Do you think your subsidy is more important than the financial aid we give to students to go to college? Could you answer that: yes or no?

MULVA: Well that's a very difficult question for me - they're two different, totally different questions.

SCHUMER: But we have to weigh those two things, Mr. Mulva. We have to weigh it because we have to get the deficit down to a certain level. So which would be - if you had a choice of one or the other as an American citizen, which would you choose?

MULVA: Well Senator, that's a choice that, legislatively, you're going to have to be making.

GELLERMAN: And Congress is set to make that choice. Soon it will decide if oil subsidies stay or go. Living on Earth’s Mitra Taj reports.

TAJ: With high gas prices and oil profits at an all-time high, Senate Democrats are throwing their political weight behind a bill to repeal subsides for the country’s biggest oil companies. Senate majority leader Harry Reid says the reform is a no-brainer at a time when reducing the deficit is a top priority.

REID: Seniors are struggling - oil companies are not struggling. Yet Republicans want to keep handing billions of dollars to the oil companies and ending Medicare as we know it.

TAJ: The legislation would undo special tax credits, deductions, and royalty relief for the country’s five largest oil companies, redirecting two billion dollars a year to the U.S. Treasury. Much of that would come from changes to the foreign tax credit, which gives companies doing business abroad a dollar per dollar refund on taxes paid to foreign governments. Democratic Senator Robert Menendez, the lead sponsor of the legislation, says oil companies have found a special loophole in the credit that he wants to close.

After saying he'd consider removing tax breaks for oil companies, House Speaker John Boehner changed his mind and said all tax forms of tax increases are non-negotiable. (Courtesy of the House of Representatives)

MENENDEZ: U.S. oil and gas companies have smart lawyers and accountants, and they have figured out that if you can convince foreign governments, such as Nigeria, to charge you taxes instead of royalties on your exploration, then they can get a big break on U.S. taxes. This amounts to the U.S. government subsidizing foreign oil production.

TAJ: This isn’t the first time Menendez, from New Jersey, has authored legislation targeting benefits enjoyed by the oil industry. But Democratic co-sponsor Claire McCaskill is from the more conservative Missouri and is one of the most politically vulnerable Senators facing re-election in 2012. She says she signed up for the bill when it became clear the money recovered from oil companies would only be used to reduce the deficit.

MCCASKILL: I support the bill because it goes toward deficit reduction. I will not support the bill if it goes for any other purpose.

TAJ: McCaskill says she’s confident voters paying around four dollars a gallon for gas will agree.

MCCASKILL: This ought to be the essence of low-hanging fruit. This ought to be a bill that goes to the floor and receives unanimous support. If anybody believes that the oil companies aren’t going to remain the most profitable companies on the planet after we enact this bill, then I’ve got a car that I want to sell you that runs on sunshine.

TAJ: Actually, there are electric cars that can be powered by solar energy on the market, and President Obama wants them to steer us away from our oil addiction. His idea was to pay for clean energy investments with the subsidies now given to oil companies. But Democrats in the Senate decided to abandon that approach for one they think would be harder for fiscal conservatives to say no to: instead of turning the oil offsets into green subsidies, they’ll put them toward deficit reduction: instead of removing subsidies for all oil companies, as the President proposed, they’ll just take them from the most profitable companies.

But Republicans have roundly dismissed the proposal as an energy tax. Senate Minority Leader Mitch McConnell cited work of the non-partisan Congressional Research Service.

MCCONNELL: The Congressional Research Service tells us that raising taxes on American energy will do two things: it will increase the price of gas, and it will increase our dependence on foreign competitors. By taxing American energy production, they’re also outsourcing American jobs. So let me get this straight - higher gas prices, fewer American jobs, and more dependence on foreign competitors at the expense of American energy? That’s their plan? No thank you.

TAJ: The research service analyzed the President’s broader plan to repeal oil subsidies and did conclude it could result in small-scale increases in gas prices. But the service followed up with a look at provisions in the current Senate bill and concluded gas prices wouldn’t be affected. Economist Doug Koplow follows energy subsidies for the organization Earth Track. He says while Republicans call the legislation a tax, subsidies are really more like spending - a way to favor one group over others.

KOPLOW: One way to think about it is that we have a government that requires money for its operations, and the government collects that money from its citizens and its corporations. And if you come out with special rules that allow certain citizens or certain corporations to pay less than other people, you have a shortfall in revenues that needs to be made up - usually by higher taxes on the people left paying the fees and taxes.

TAJ: Republicans say the bill is a distraction from the trillions of dollars in cuts they want to make. But the most vocal opposition has come from within the Democratic Party itself. Senator Mary Landrieu of Louisiana took to the Senate floor to defend the companies that do business in oil-rich states.

LANDRIEU: Some states like to consume a lot and produce nothing. We produce enough energy for everybody in our state - what we need - and we export it to everyone else in America that needs it. And what do we get? We get bills like this that go after, directly, the big companies in our state, that work in our state, to somehow put them in a position that makes them feel like they’re not really good companies, they’re not American companies, they get all these subsidies.

TAJ: With Landrieu and a few other Democrats prepared to vote ‘No,’ the proposal to make oil companies pay more taxes is unlikely to succeed in the Senate. There, even a unified 51 Democrats struggle to find a few Republicans to overcome a filibuster. And in the House, a similar proposal was shot down by Republicans who passed their own answer for voters frustrated with high gas prices: legislation to expand and speed up offshore oil drilling. For Living on Earth, I’m Mitra Taj in Washington.



For more on the Senate bill, click here

The CRS report on impacts on gas prices

The CRS report on the President's proposal

ConocoPhillips released a statement calling the proposals "un-American"

Senator Landrieu defends oil companies


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