Déjà vu all over again: Senate targets American oil and gas companies for energy tax hikes

Any doubt we are in the middle of an election season will be erased by casting an eye on Washington, where some in the United States Senate are once again training their sights on the oil and gas industry.

The Senate leadership is scheduling a vote in the next few days on a bill its supporters claim will “eliminate unnecessary tax subsidies” for integrated energy companies like ExxonMobil. It bears a loaded title: the “Repeal Big Oil Tax Subsidies Act” (S.2204).

As Yogi Berra might say, “It’s déjà vu all over again.” A nearly identical bill was considered by the Senate earlier in this Congressional session and failed. So why are the bill’s proponents trying again now?

It seems that politics and campaigning have a lot to do with it, as it can’t be justified based on good policy.

I’ve explained before that items cited as “subsidies” for oil and natural gas are in fact legitimate tax provisions that apply to many organizations and industries across the board.

Take, for example, the manufacturing income deduction under Section 199 of the tax code, which critics often point to first. It’s no subsidy at all. It’s a deduction available to virtually every American manufacturer – from Gulf Coast refiners and Detroit automakers to Silicon Valley microchip manufacturers and Hollywood movie studios.

To deny just five large oil and gas companies from utilizing this deduction, as the new bill proposes, does not remove a special industry subsidy; instead it singles out a handful of companies for special punitive taxation. That’s Exhibit A in government picking winners and losers.

Another proposal would remove a provision that ensures U.S.-based companies like ExxonMobil are not double-taxed on income earned outside the United States. To prevent double taxation, the U.S. has traditionally permitted a credit for taxes paid to foreign governments, available to individual citizens and corporations alike. The Senate proposal would effectively remove that credit for three – and only three – American energy companies: ExxonMobil, Chevron, and ConocoPhillips. Our non-U.S.-based competitors would be unaffected.

Aside from the outrageousness of being subjected to a double-jeopardy tax trap, the practical effect of such a measure would be to give non-U.S.-based oil companies a new advantage. Is a policy that handicaps a U.S. company to the benefit of its foreign competitors really something that the U.S. government should be promoting?

Last week I pointed out it’s the oil and gas industry that provides significant financial support to the U.S. government, not the other way around. Each day the industry pours $86 million into the federal government’s coffers in rents, royalties, bonuses and corporate taxes – roughly $31 billion annually (figures that don’t even begin to include the payments made at the local and state levels). Remember those numbers the next time you hear someone in Washington trying to score cheap political points by calling for Big Oil to pay its fair share of taxes.

Taken as a whole, the “Repeal Big Oil Tax Subsidies Act” would do little but raise taxes on energy companies and, by extension, energy consumers. It would hike the cost of producing the future energy supplies our economy will need while hamstringing domestic energy producers.

Let’s hope the Senate has the sense to shelve this political proposal one more time.


7 Comments

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  1. Richard Baty says:

    As an ExxonMobil share holder I authorize you to send a letter to all Senators explaining that if this legislation passes and XOM can not overturn in court, that you will be known as ExxonMobil of Canada (or some other good place). I worked in NYC when you moved to Houston!

    • John Kennedy says:

      What company are you talking about? ExxonMobil has been located in the Dallas ( Loc Colinas) area since it was formed with the merger of Exxon and Mobil. Both Exxon and Mobil at one time had its offices in New York but Exxon moved to the Dallas Area and Mobil moved to Fairfax Virginia. Neither company moved to Houston.

  2. Ronald Wagner says:

    How about building refineries in Cushing Oklahoma and Patoka Illinois, near the population center of the USA. Then give Americans a lower price on gasoline. It would do wonders for America and our economy. Better than trying to get it to the Gulf of Mexico so you can sell it to other countries.

    • John Kennedy says:

      So you think spending billions of dollars building new refineries in Oklahoma and Illinois is going to lower gasoline prices? How do you think the investment is going to be paid for? Like any business, ExxonMobil will recoup its initial investment and pass the cost on to the consumer. And don’t forget the time involved in building a new refinery. It would take years to even get the necessary approvals from all of the government agencies and then several years for construction.

  3. shari worthington says:

    The government already takes more in taxes from ExxonMobil than the company makes in profits. Have any of the politicians bothered to take a look at just how bad government greed has gotten in this industry?

    From the 2011 10K:
    - GOVERNMENT TAKE $104.5 Billion (taxes & fees)
    - XOM PROFITS $41.1 Billion

    Since when is it right for the government to take more in taxes than a private company makes in profits? In this case, it’s 2.5X profits. This is costing American workers much needed jobs and raises.

  4. mac gardner says:

    You don’t have to worry about the senate as long as Mitch McConnell is miniority leader. The senate vote didn’t “:fail” last week, it was approved by a majority of senators, but McConnell used his filubuster for about the 1,000th time in a year. He killed the American Power act, whihc had 59 senators supporting, along with 85 percent of the American public, with a filiubuster, after delaying the bill for more than a year. The nearly $500,000 in big oil /Koch brothers Super PAC “contribution” bought a freind for the oil industry in McConnell. The CNG superhighway would have been 60 percent complete and gas prices would be far lower if it hadn’t been for McConnell protecting the monopoly. I wonder if gas will stay around $4.00 when CNG is selling for half that price at the Flying J and Pilot truck stops in the near future, or will there be a competitive market which we haven’t seen in the US for years? CNG is selling for $0.78 about 3 miles from my house. I’d love to own a trucking company right now and start running trucks on the routes served by CNG, like the San Diego to LA corridor, which is already up and running. You could haul freight for half the price of competition and make twice the profit.

  5. mac gardner says:

    Why is gasoline selling for $0.11 per gallon in Caracas, Venezuela today? T. Boone Pickens says the lifted cost for a barrel of oil is about $3.00 per barrel in Saudi Arabia. Tom Ward says that Sandridge Energy is producing oil in Oklahoma for $6.50 per barrel, yet we are told that the “wholesale price” for a barrrel of unrefined oil is $104.00? Why is that?

  6. Richard Baty says:

    As an ExxonMobil share holder I authorize you to send a letter to all Senators explaining that if this legislation passes and XOM can not overturn in court, that you will be known as ExxonMobil of Canada (or some other good place). I worked in NYC when you moved to Houston!

    • John Kennedy says:

      What company are you talking about? ExxonMobil has been located in the Dallas ( Loc Colinas) area since it was formed with the merger of Exxon and Mobil. Both Exxon and Mobil at one time had its offices in New York but Exxon moved to the Dallas Area and Mobil moved to Fairfax Virginia. Neither company moved to Houston.

  7. Ronald Wagner says:

    How about building refineries in Cushing Oklahoma and Patoka Illinois, near the population center of the USA. Then give Americans a lower price on gasoline. It would do wonders for America and our economy. Better than trying to get it to the Gulf of Mexico so you can sell it to other countries.

    • John Kennedy says:

      So you think spending billions of dollars building new refineries in Oklahoma and Illinois is going to lower gasoline prices? How do you think the investment is going to be paid for? Like any business, ExxonMobil will recoup its initial investment and pass the cost on to the consumer. And don’t forget the time involved in building a new refinery. It would take years to even get the necessary approvals from all of the government agencies and then several years for construction.

  8. shari worthington says:

    The government already takes more in taxes from ExxonMobil than the company makes in profits. Have any of the politicians bothered to take a look at just how bad government greed has gotten in this industry?

    From the 2011 10K:
    - GOVERNMENT TAKE $104.5 Billion (taxes & fees)
    - XOM PROFITS $41.1 Billion

    Since when is it right for the government to take more in taxes than a private company makes in profits? In this case, it’s 2.5X profits. This is costing American workers much needed jobs and raises.