Washington - With the nation's five largest oil companies taking home nearly $1 trillion in profits over the past decade, a group of Democratic Senators today announced legislation to finally put an end to the unfair tax subsidies that only benefit Big Oil's bottom line and CEOs. As families are paying more than $4 per gallon in gas prices and doing their part to address the country's growing deficit, Big Oil needs to step up to the plate and share in the sacrifice to help balance the budget.
U.S. Sens. Robert Menendez (D-NJ), Sherrod Brown (D-Ohio) and Claire McCaskill (D-Mo.), announced the introduction of the Close Big Oil Tax Loopholes Act, which will put an end to taxpayer handouts to the 5 largest oil companies making record profits, and use the billions in savings to help reduce the deficit. The Senators also called on Republicans to support the effort to close the loopholes and join other Republicans, including Speaker Boehner and Representative Ryan, who have voiced support for cutting subsidies.
"At a time when families are feeling the pain at the pump and our deficit keeps growing at an alarming rate, we simply can't afford to keep giving away billions in taxpayer handouts to oil companies that are doing nothing to help lower prices. The 'Close Big Oil Tax Loopholes Act' is based on a simple premise: we need everyone to do their share to lower the deficit, not just working families and the elderly," Menendez said.
"It's bad enough that Ohioans have to pay more than $4.00 a gallon at the gas pump. They shouldn't need to subsidize the oil industry through the tax code as well. Big Oil is reaping big profits while working- and middle-class Ohioans struggle to make ends meet. It's about time this corporate welfare meet its end," Brown said.
"If we are going to get serious about addressing our national debt, we can no longer afford to keep giving away taxpayer's money to the most profitable companies in the world. There are going to be some tough decisions when it comes to cutting back, but I hope we can agree that our government writing checks to oil and gas companies with tax dollars should be on the chopping block," McCaskill said.
"For years, the world's biggest oil companies have slipped their way through every loophole in the book to pad their profits at the expense of American taxpayers," Tester said. "This bill restores fairness and holds these corporations accountable to taxpayers, who deserve no less."
According to a recent report from Citizens for Tax Justice, Big Oil companies spent most of their profits in the purchase of their own stocks and boosting its dividends between 2005-2010. In 2010, four of the largest "Big Five" oil companies (excluding BP due to the oil spill) allocated only 18 percent of their post tax profits on exploration and 60 percent on dividends and stock repurchases. Link to the full Report: http://www.ctj.org/pdf/energy20110429.pdf
Summary of the bill:
Modifications of foreign tax credit rules applicable to major integrated oil companies which are dual capacity taxpayers.
U.S. taxpayers are taxed on their income worldwide, but are entitled to a dollar-for-dollar tax credit for any income taxes paid to a foreign government. U.S. oil and gas companies have been accused of disguising royalty payments to foreign governments as foreign taxes. This allows them to lower their taxes in the U.S. The bill would close this loophole that amounts to a U.S. subsidy for foreign oil production for the Big 5.
Limitation on deduction for income attributable to the production of oil, natural gas, or primary products thereof.
In 2004 Congress enacted Section 199, the domestic manufacturing tax deduction. In 2008 Congress froze the Section 199 deduction at 6% for all oil and gas activity. The bill eliminates the Section 199 deduction for the Big 5.
Limitation on deduction for intangible drilling and development costs.
Would deny the Big 5 oil companies the option of expensing Intangible Drilling Costs (IDCs) and require such costs be capitalized. IDCs are expenditures such as wages, fuel, repairs, hauling, and supplies necessary for the drilling of oil wells. Currently, integrated oil companies can expense 70% of the cost of IDCs. The bill requires the Big 5 to capitalize all of its IDC costs.
Limitation on percentage depletion allowance for oil and gas wells.
Firms that extract oil and gas are permitted a deduction to recover their capital investment under one of two methods. Cost depletion allows for the recovery of the actual capital investment-the costs of discovering, purchasing, and developing the well-over the period the well produces income. Under this method, the taxpayer's total deductions cannot exceed its original investment.
Percentage depletion allows the cost recovery to be computed using a percentage of the revenue from the sale of the oil or gas. Under this method, total deductions could (and often do) exceed the taxpayer's capital investment. The bill repeals percentage depletion for the Big 5.
Limitation on deduction for tertiary injectants.
Tertiary injectants are used in enhanced oil recovery to drive more oil from an existing well. Currently, oil companies are allowed to deduct the cost of tertiary injectants rather than capitalizing their costs and recovering them over time. The bill requires the Big 5 to capitalize the cost of tertiary injectants it uses during the year and recover those costs over time.
Repeal of Outer Continental Shelf deep water and deep gas royalty relief
Repeals Sections 344 and 345 of the Energy Policy Act of 2005. Section 344 extended existing deep gas incentives and Section 345 provided additional mandatory royalty relief for certain deepwater oil and gas production. These changes will help ensure that Americans receive fair value for Federally-owned fossil fuel resources.
All savings realized as the result of the bill's elimination of the tax breaks and other subsidies currently going to the major integrated oil companies are devoted to deficit reduction.