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US Senate defeats bid to end 'big oil' subsidies

03.29.2012  | 

Senate Republicans united to block a Democratic attempt to end roughly $20 billion in federal subsidies to the largest oil and gas companies, in a largely political vote that had little chance of approval. Democrats argued that ending unnecessary taxpayer subsidies would have no effect on the price of gasoline.



WASHINGTON -- Senate Republicans united to block a Democratic attempt to end roughly $20 billion in federal subsidies to the largest oil and gas companies, in a largely political vote that had little chance of being approved by the divided Senate.

The bill would have affected subsidies paid to BP, ExxonMobil, Shell, Chevron and ConocoPhillips.

The Senate voted 51 to 47, mostly along party lines. Even though a majority of senators approved the legislation, it fell short of the 60-vote requirement to pass it.

Democrats had proposed redirecting some of the money that would be saved by the taxpayer to renew a series of lapsed tax credits aimed at manufacturers of solar panels, wind turbines and electric cars.

Those credits ran out at the end of last year, and the renewable-energy industry has been clamoring for Congress to renew them.

The remaining $9 billion would have been used towards paying down the budget deficit.

The effort by Democrats was a political gesture aimed at highlighting Republicans' support for the biggest oil companies at a time when people are struggling to afford gasoline at the pumps.

For their part, Republicans criticized Democrats for what they called a tax increase on oil companies at a time when prices at the pump are rapidly escalating.

According to the auto club AAA, the average price of a gallon of gasoline stood at $3.92 on Thursday. Many experts have predicted that the average price could hit $5 by the summer months.

"Is this really the best we have to offer folks who are staring at $4 a gallon of gas," Senate Minority Leader Mitch McConnell (R., Ky.) said. "A bill that even Democrats admit won't have anything to do with the price of gasoline?"

Democrats pointed to the fact that the five largest oil companies reported a combined $140 billion in profits in 2011. They argued that ending unnecessary taxpayer subsidies would have no effect on the price of gasoline.

President Barack Obama and congressional Democrats have sought to end the payments since he took office, although they have been consistently blocked by Republicans.

Dow Jones Newswires

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Chris Keilberg

Use of the term : "subsidy" is ridiculous, at best ! No domestic oil company has ever received a check from the government.
What is being continuously ignored is the fact that the majority of these tax breaks are afforded to the individual investors whom, in aggregate, provide the vast majority of capital for domestic drilling. When I say "investors" , I am not referring to wealthy individuals, day traders that invest for a living, or huge hedge funds, I am talking about working class people, blue collar workers, single parents, retired people, almost anyone with a 401k or other retirement vehicle. Drilling new wells , even in proven areas, is risky business, there are no "sure things" and the risk capital expended to drill with typically comes, in aggregate, from individual investors , even when it is a major oil company doing the drilling. Even with all of our modern technology, there are still dry holes drilled and completion failures. Oil is a volatile commodity and oil which costs $60. per bbl to produce that is selling for $80. per bbl today might well be selling for $40. per bbl tomorrow, it is unpredictable and government intervention does not help to stabilize the marketplace. Investors are allowed a tax deduction for the portion of their total investment that is considered to be IDCs (intangible drilling costs) , these are the nonrecoverable expenses associated with drilling a new well (rig time,cement, fuel, drilling mud, etc. items paid for which cannot be recovered, salvaged and/or resold-reused ) . According to 612 of IRS code, Intangible Drilling Cost (IDCs) may be deducted in the year paid, rather than capitalized and depreciated. The IDC deductions are "flow through" to the actual investors and therefore mostly not actually realized by companies themselves.This is the same federal tax treatment extended to the "risk capital" portion of any other domestic business investment and without an IDC deduction allowed, there would be no incentive for people to invest in something as inherently risky , yet necessary, as domestic oil & gas drilling. For the federal government to single out investors in any particular industry (such as oil & gas) simply because the Obama administration admittedly "does not like them" or they are presently "making too much profit" is flat out wrong, it is no different than stating certain people must pay more tax because of their skin color or religion. It is easy in times of high oil prices for the administration to attack the industry so as to evoke class warfare and make people believe they are looking out for the citizens, when, in fact, it is primarily the citizens they are going after. The bottom line is that if investment capital for domestic drilling is harder to come by, it translates to less market stability, decreased national security, and higher fuel prices for us all.
Decisions are presently being made that will have long standing consequences for all of us. We had had better wake up and

Peter Nick

This issue is analogous to the 2009 Obama-progressive acknowledgement that tax rate cuts which actually result in total tax revenue increases are simply UNFAIR. Most of the subsidies are basically as Mr. Wilcox acknowledged - standard business practices that support the idea that its not a profit till all the expenses are paid. So when their costs go up, who will pay for it. The oil companies ? Hardly.
Maybe we should just legislate that those rascally oil field trash should have to lose 10% of their total revenues instead of makeing a moderate 6% profit. That's their idea of fair.

A few of those bad oil companies get alternative/ green energy subsidies and tax rebates. I would agree with junking these payoffs as long as everyone elses' green econ subsidies.get squashed as well.

Rob Wilcox

I think you do a disservice to the readers by using the word subsidies without any explanation. Are these subsidies based on typical big business write-off or depreciations or exclusively aimed at this group called big oil. We get rapped up in sound bites without providing the full story. So people walk around saying big oil subsidies without knowing what they are! I would like to know more.

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