December 8, 2005
Punishing Big Oil
By Robert
Novak
WASHINGTON -- The "manager's amendment" routinely approved
by the Senate just before passage of its tax bill Nov. 17 included
an unnoticed change in U.S. tax law applied to Big Oil. It would
prevent three U.S.-based companies that produce oil abroad from
continuing to reduce their U.S. taxes by the amount they pay foreign
governments in taxes. Intended to punish the oil industry for
making so much money, the provision actually would increase American
dependency on foreign oil producers.
This basic
change in policy is legislation passed in the dead of night. It
has received much less attention than the bill's one-time change
in accounting procedures, amounting to a backdoor "excess
profits" tax. Like all such punitive tax measures, it would
defeat its own intent by limiting supply and increasing the gas
pump cost.
Neither
of these provisions is in the tax bill up before the House, and
they face an uncertain fate in a Senate-House conference early
next year. Nevertheless, punishment of Big Oil was approved by
a Republican-controlled Senate as the bill passed 64 to 33 (with
four dissenting Republicans and only one objecting to its anti-oil
provisions). This was the work of Sen. Charles Grassley, the supposedly
conservative chairman of the Senate Finance Committee who wanted
his tax bill passed with the biggest margin possible.
When gasoline
prices soared well over $3 a gallon earlier this year, executives
of five integrated (exploring, refining, retailing) companies
were summoned by the Senate Commerce Committee to explain why
they were making so much money. Republican politicians were in
a quandary. They wanted to appease their constituents, but they
could not buy into Democratic plans for heavy taxation of oil
companies.
Debate on
the tax bill was illusory, as is much in the Senate today. Amendments
such as Democratic Sen. Byron Dorgan's, which in the tradition
of prairie populism levied a 50 percent excise tax if oil prices
exceeded $40 a barrel, were rejected two-to-one. Instead, Grassley
went to the back door with the accounting scheme, inflicting a
one-time $4.9 billion tax hit on the five companies that testified
on Capitol Hill: Exxon Mobil, Chevron, ConocoPhillips, Shell Oil
and BP America.
But that
was not all. Grassley produced his manager's amendment just before
the bill's passage. Approved without debate or roll call, it removed
from the integrated oil companies the foreign tax credit that
has been a founding principle of U.S. tax policy. Of the Big Five
companies, only those based in the United States -- Exxon Mobil,
Chevron and ConocoPhillips -- are directly affected. They would
be seriously disadvantaged against Russian, Chinese and French
competitors in global exploration.
This was
a classic stealth amendment. It was ignored even by the oil industry
press, and the White House did not mention it in threatening to
veto any tax bill with the accounting provision.
While there
was no meaningful Senate debate, Grassley got an earful from his
Republican colleagues for joining the oil-bashers. An Iowa farmer,
Grassley is something of a prairie populist himself. Still, he
privately blamed Sen. Olympia Snowe, a liberal Republican from
Maine, for insisting on punishing oil as her price for granting
the necessary vote to get the tax bill out of the Finance Committee.
That raised
some doubt how hard Grassley will fight his House nemesis, Rep.
Bill Thomas, in the Senate-House conference. Whether Grassley
accedes on oil, the Senate bill has put Republicans in a difficult
position of seeming to knuckle under to Big Oil if they drop the
Senate provisions.
All this
hardly seems justified by allegedly indecent profits. Highest
oil earnings in the third quarter of 2005 were 9.8 percent for
Exxon Mobil, compared with 33.2 percent each by Microsoft and
Citigroup. According to filings with the federal government, oil
and natural gas earnings for the second quarter of 2005 were 7.7
percent, compared with 19.6 percent for banks and 18.6 percent
for pharmaceuticals.
What Chuck
Grassley did in the Senate was petty politics if he was not serious
and expected to be overridden in the House. If he was serious,
Republicans should be asking themselves why they were given their
Senate majority and what they are doing with it.
Copyright
2005 Creators Syndicate
