Oil companies’ second quarter profits are down because of relatively low crude prices, but that isn’t stopping Democratic lawmakers from pushing plans to spike tax breaks for the industry.
Sen. Robert Menendez, D-N.J., and Rep. Chris Van Hollen, D-Md., today renewed a campaign to end a suite of tax incentives for the nation’s five biggest oil companies and accused presumed Republican presidential nominee Mitt Romney of blindly supporting “subsidies for the richest oil companies.”
Menendez said he would be fighting to keep oil companies from “getting tax breaks they don’t need when they are making record profits.”
The only hitch? Oil companies are actually posting disappointing second quarter numbers, beginning with ConocoPhillips, which said Wednesday that it had earned $2.27 billion, a 33 percent decline. Royal Dutch Shell posted a net profit of roughly $4 billion. And ExxonMobil reported a second-quarter profit of $15.9 billion, which was described in some accounts as “disappointing.”
“I don’t think I would call nearly 16 billion dollars disappointing, and it certainly is no excuse for corporate welfare, which is what these subsidies amount to,” Menendez said.
Van Hollen said oil companies want American consumers “to pay them twice: once at the pump for gas, and another through taxpayer giveaways in the tax code, and that is just unacceptable.”
Proposals to end tax breaks for oil and gas companies have been advanced on Capitol Hill this year, but they have repeatedly failed in the Senate, even when gas prices — and public frustration with paying more at the pump — was high.
The Obama administration has repeatedly called for eliminating many of the targeted tax breaks.
But industry leaders stress that oil and gas companies pay an estimated $30 billion every year in royalties, taxes and fees to the federal government. Although a tax increase would bring in more money in the short term, they say it ultimately could cause the government to take in fewer dollars by dissuading domestic oil and gas production.
John Felmy, the chief economist for the American Petroleum Institute, told reporters today that the oil industry is providing a “major boost to the economy” that is threatened by the prospect of new taxes and proposed regulations. He stressed that oil companies already have a higher effective tax rate than counterparts in other industries.
The tax provisions that are targeted for elimination include a deduction for intangible drilling costs, such as the cost of repairs, site preparation and hauling supplies. Currently, integrated oil companies can expense 70 percent of these costs, but proposals in Congress would require the big five oil companies to capitalize all of these costs.
Menendez also has pushed to bar companies from claiming a tax credit on payments to foreign governments — including petroleum income taxes — that they pay in exchange for some economic benefit. The five biggest oil companies would still be able to deduct foreign payments. Menendez has said the dual capacity tax credit allows oil companies to disguise royalty payments to other governments as foreign taxes, lowering their U.S. tax bill and effectively forcing the U.S. to subsidize foreign oil production.
Under the proposals, major oil companies also would be barred from taking a Sec. 199 or domestic manufacturing deduction, which has generally been available to a broad range of U.S. firms.