The tax-related talk in Washington lately has shifted from overall tax reform to specific fixes like eliminating about $4 billion in tax breaks for major oil companies.
President Obama kicked off the debate about a week ago by penning a letter to congressional leaders urging them to do away with the tax breaks (see Obama Urges Elimination of Oil Producer Tax Breaks). He followed that up in his weekly address, delivered during a busy weekend in which he not only lambasted Donald Trump at the White House Correspondents Dinner, but also took care of dispatching Osama bin Laden to a watery grave. Obama noted that the oil companies are reporting “outsized profits” this quarter, thanks to high gas prices that are putting a dent in consumers’ wallets.
Senate Democrats are already in the process of drafting legislation that would do away with tax breaks like the Section 199 domestic manufacturing deduction for the five largest oil companies, reduce the foreign tax credit for royalty payments to foreign governments, and impose an excise tax on certain Gulf oil leases (see Baucus Plans to Draft Legislation to End Oil Tax Subsidies).
House Democrats on the Ways and Means Committee wrote a letter Tuesday urging Chairman Dave Camp, R-Mich., to consider legislation to repeal the Section 199 deduction and similar tax breaks. They noted that the five largest oil companies reported a combined profit of $32 billion in the first quarter.
However, efforts to repeal the tax breaks are already meeting resistance from congressional Republicans, not to mention the oil industry and even the Texas Society of CPAs.
This isn’t the first time that Democrats have tried to do away with various oil industry tax breaks, and they had a difficult time eliminating them even when they were in control of both houses of Congress. Opponents of the repeal argue that the oil companies would only raise prices to make up for the revenue lost from the tax breaks, and that the Section 199 tax credit provides an incentive for producing oil domestically.
Obama would like to shift some of the money from the oil tax breaks over to clean energy sources such as wind and solar, while increasing production of biofuels and natural gas. He is once again trying to move the needle on crafting an energy policy that can get through Congress after his last energy bill failed to make it to the floor of the Senate. The administration has released its Blueprint for a Secure Energy Future, but it seems to have given up hope of trying to get any legislation with cap-and-trade provisions passed by Congress this year.
Instead, the blueprint calls for tax credits for improvements in energy efficiency in commercial buildings, turning the $7,500 tax credit for electric vehicles into a rebate, and expanding a program for turning tax credits for renewable energy into grant payments.
However, the oil industry is expected to lobby fiercely to protect its taxpayer subsidies. Even with a notch on his belt from getting rid of Bin Laden, the President will still have a tough time liquidating Big Oil's tax breaks.
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