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The Policy Racket

Harry Reid leads effort to repeal $2 billion in oil tax breaks

Harry Reid

AP Photo/J. Scott Applewhite

Senate Majority Leader Harry Reid speaks to reporters as the Senate is poised to vote to stop tax breaks for oil companies, at the Capitol in Washington, Tuesday, May 17, 2011.

WASHINGTON - After weeks of fuming, Senate Democrats are finally attempting to light a match under Republicans by holding a vote to end subsidies for oil and gas companies posting record profits.

It will take a political miracle for them to blow up the relationship between the petroleum industry and the government on the back of this bill. Republicans are opposed to raising the companies’ effective tax burden, which in some cases is higher than the official corporate rate. So are Democrats Mark Begich of Alaska and Mary Landrieu of Louisiana — who said last week that lawmakers from states that don’t produce energy shouldn’t push for what she called job-killing measures in the states that do.

The charge is being led from the top. Senate Majority Leader Harry Reid, D-Nev., along with Sen. Robert Menendez, D-N.J., circulated a “Dear Colleague” letter, urging others in the Democratic caucus to support a legislative effort to end subsidies to oil and gas companies. That call turned into a bill last week, which comes to the Senate floor today.

“Why should Americans pay at the gas pump once and then give these subsidies to oil companies a second time?” Reid said this afternoon. “We believe we need to cut government spending ... and we believe the place to start is with these subsidies.”

The cut is estimated to save about $2 billion a year over the next decade — a far cry from the trillions Republican leaders have demanded lawmakers cut from the deficit (the total fiscal 2012 request from the White House is $3.7 trillion).

Republicans also think the Democrats’ move is wrong ideologically. The caucus as a whole is pushing for a revision of the corporate tax code that would lower rates across the board, and doesn’t support, as Nevada Sen. Dean Heller put it last week, “raising taxes on the oil industry, because I don’t think that will lower the price of gasoline at the pumps.”

Four-dollar-a-gallon gas has been setting off a bit of political frenzy in Washington, as lawmakers scramble to use the political power of that spike — recent polls have shown more than 7 in 10 Americans consider fuel prices to be a serious hardship — to drive home their message about Big Oil.

For Democrats, it’s reining in the oil companies, and not just the subsidies: Reid released a letter this morning that he and a coalition of Senate Democrats penned to the chairman of the Federal Trade Commission, asking him to launch an investigation into whether U.S. oil refineries were conspiring to drive prices up by artificially keeping production down.

“Since the beginning of 2011, U.S. refiners have seen over a 90 percent increase in their refining margins,” Reid wrote. “While some have argued that this increase is due to potential impacts from recent flooding along the Mississippi River, this cannot justify the steady increases in their margins since January of this year.”

Republicans are dismissing the letter and the legislation as pointless political posturing.

“Symbolic votes like this that aim to do nothing but pit people against each other will only frustrate the public even more,” Minority Leader Mitch McConnell, R-Ky., said.

Although Democrats are expected to lose this vote, Reid remained adamant today the vote was not symbolic.

“I am confident that before we finish our budget negotiations here, in anticipation of raising the debt ceiling, that that will be part of it,” he said of eliminating oil and gas subsidies.

The composition of Congress is rendering the Senate little more than a political testing ground, because at the end of the day, what matters is that Reid is able to reach an accord with the majority of House Speaker John Boehner’s Republicans; those in the Senate simply aren’t as important.

But on this issue, Reid and Boehner are pretty far apart. House Republicans haven’t been willing to take a swipe at black gold. Instead, they want to strike it; and last week, approved a series of measures to increase offshore drilling via a rule that would impose a 60-day wait limit for processing drilling applications on the Interior Department. Any proposal not formally adjudicated in that time would win automatic approval.

The Senate takes up those proposals Wednesday, in another show vote that isn’t expected to pass.

Boehner hasn’t responded similarly to a letter-writing campaign from House Democrats to take up the bill to end oil and gas subsidies that the Senate will vote on today.

“You recently said that Big Oil is going to pay its ‘fair share in taxes,’ ” Rep. Shelley Berkley, D-Nev., wrote to Boehner last week. “There is absolutely no justification for American taxpayers to subsidize Big Oil to the tune of billions of dollars per year. For this reason, I would once again ask that a vote be scheduled immediately on eliminating taxpayer subsidies to large integrated oil companies.”

But if these legislative efforts are all just test flares for the budget battle down the road, it gets a bit tricky.

Oil and gas companies receive about 13 percent of the $16.6 billion the government spends annually on energy subsidies; the lion’s share goes to backing coal and renewable fuels — the latter being an area where many in the Republican Party have called for ending subsidies, and have tried to, in recent budget bills.

Republicans have also questioned why the Democrats’ efforts are focusing on just the five biggest oil producers: Exxon, BP, Shell, ConocoPhillips and Chevron. They argue that excluding smaller and mid-sized oil producers proves that Democrats’ position is flawed: Other, less profitable companies would not be able to sustain their cleaner-energy innovation research and development projects without the government’s helping hand.

But Democrats are being frank about the fact that this is, to them, about comparing numbers. The five biggest oil companies have become the focus of the Democrats’ campaign because of their profits — almost $36 billion in the first quarter of 2011. Those figures led former Shell CEO John Hofmeister to say this year that petroleum subsidies are “not necessary.” By comparison, the $2 billion lawmakers like Reid are seeking to strip from their subsidies amounts to just more than 1 percent of projected annual profits.

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