Obama: Congress must ax oil industry tax breaks as part of debt deal

President Barack Obama is ramping up pressure on Republicans to slash tax breaks for oil and gas companies as part of a deal to trim the federal deficit.

In a news conference in the White House’s East Room, Obama today said the “tough choices” facing lawmakers boil down to axing those oil industry tax breaks or slashing such federal programs as research grants and scholarship programs.

“If we choose to keep tax breaks for oil and gas companies that are making hundreds of billions of dollars, then that means we’ve got to cut some kids off from getting a college scholarship, that means we’ve got to stop funding grants for medical research (and) that means that food safety may be compromised,” Obama said.

Democrats and Republicans are at odds over how to trim $4 trillion as part of a legislative package that also would raise the current $14.3 trillion debt ceiling.

Democrats and the Obama administration have insisted on getting rid of some tax incentives to raise money. In addition to the credits and incentives long used by oil and gas producers, Democrats have targeted tax breaks enjoyed by corporate jet owners and hedge fund managers.

Republican leaders who were negotiating the debt package, meanwhile, have insisted on spending cuts alone and flatly rejected any idea of raising taxes as part of the deal.

Obama said Republicans’ position isn’t “sustainable.”

“You can’t reduce the deficit to the levels that it needs to be reduced without having some revenue in the mix,” Obama said. “And the revenue we’re talking about isn’t coming out of the pockets of middle-class families that are struggling; it’s coming out of folks who are doing extraordinarily well and who are enjoying the lowest tax rates since before I was born.”

Obama added:

“Before we ask our seniors to pay more for health care, before we cut our children’s education, before we sacrifice our commitment to the research and innovation that will help create more jobs in the economy, I think it’s only fair to ask an oil company or a corporate jet owner that has done so well to give up that tax break that no other business enjoys.”

The targeted tax breaks include a domestic manufacturing deduction that is widely available to other industries and a deduction for intangible drilling costs, such as the cost of repairs, site preparation and hauling supplies. The administration also has taken aim at a percentage depletion deduction that allows energy companies and royalty owners to deduct a percentage of the revenue from the sale of oil or gas extracted from their land.

Oil and gas industry leaders reject any notion that the targeted tax breaks are unique to them and insist that there are parallels in the tax code for other companies.

“Raising taxes on an industry that already contributes more than $86 million every day to the federal government takes us in the wrong direction,” said Jack Gerard, president of the American Petroleum Institute. “It could put American jobs at risk, decrease oil and natural gas production, harm millions of retirees who rely on income from energy companies and actually reduce revenue to the government over time.”

Some former Republican lawmakers and rank-and-file GOP members have said they would support cutting tax breaks that target specific industries. But support for those changes could hinge on whether they are included as part of a broader planned rewrite of the tax code that also lowers the overall tax rate.

Lawmakers delivered a big signal that at least some energy subsidies should be on the table earlier this month, when the Senate voted to repeal a 45-cent-per-gallon excise tax credit for ethanol blenders.