A bill to scale back multibillion-dollar tax breaks for major oil firms was defeated in the U.S. Senate on Tuesday. The Democrat-sponsored measure to strip the companies of about $21 billion in tax subsidies over the next 10 years and steer the savings to reduce the federal budget deficit fell short of the 60-vote threshold after Republican opposition.
In the 52-to-48 verdict – 8 shy of the number required for bringing the measure up for debate – 3 Democrats from oil-producing states broke party ranks to join 45 Republicans in voting against the bill.
Amid public outcry over high gasoline prices and soaring industry profits, executives of the five largest private oil companies in the U.S. were summoned before the Senate last Thursday to justify billions of dollars in special tax breaks provided to them by the government.
CEOs from ExxonMobil Corp. (XOM), Chevron Corp. (CVX), ConocoPhillips (COP), BP plc (BP) and Royal Dutch Shell plc (RDS.A) – collectively known as ‘Big Oil’ – were quizzed why taxpayer subsidies should not be repealed, particularly when the companies recorded first-quarter profits totaling more than $35 billion on the back of sky-high crude prices.
Democrats have been trying to eliminate these deductions to trim down the massive federal deficit, asking the oil companies if they really deserved tax breaks even while making billions of dollars of profits each year.
A number of Senate Democrats, under the leadership of President Obama, backed the legislation that would have blocked the multinationals from claiming a tax exemption on payments to foreign governments, plus a domestic manufacturing credit that has been generally offered across a diverse spectrum of U.S. industries. Additionally, the bill would have denied the companies of their claims for deductions on some intangible drilling and development expenses.
The Democrats insist that the firms would be highly profitable even after ceding the deductions/credits and accused ‘Big Oil’ of spending most of their income to boost investor dividends and purchase their own stocks. According to them, only a negligible portion of the oil companies’ post-tax profits are used on exploration.
However, oil company executives argue that the tax benefits they enjoy are similar to those the government provides to other industries. Therefore, it is unfair to single them out for making big profits and punish them with tax hikes.
The business leaders are adamant that they already pay plenty of taxes and scaling back the credits would discourage capital spending in domestic oil fields and gas plays, thereby resulting in less exploration and lower energy production. This, the oilmen say, will force them to look for oil elsewhere, costing American jobs, which could then push up energy prices even higher.
Oil industry supporters – a group that includes many Republicans in Congress – claim that any elimination/reduction in subsidies would be tantamount to a tax increase. They believe this will raise the cost of doing business, which would lead to even higher pump prices.
The advocates say oil companies put back earnings from tax credits into exploration and production, creating more tax dollars and increasing the supply of oil. According to the Republicans, the only way to fight high oil prices is to open up more U.S. offshore drilling areas, for which they are expected to push their own bill on Wednesday.
Pointing out that regulations imposed by the Obama administration in the aftermath of last year’s BP oil spill in the Gulf of Mexico have locked up offshore oil drilling, the Republicans propose to increase domestic supply through new exploration/drilling by expediting government permits.