As Oil Company Profits Continue to Soar Leaving New York Families Feeling the Pain at the Pump, Gillibrand Calls to Close Big Oil Loophole
This Week, Speaker Boehner Visited NY Calling For Trillions Of Dollars In Cuts, But Won’t Include Billions to Big Oil On The Chopping Block Gillibrand Calls For An End To Balancing The Deficit On The Backs Of Families, While Oil Companies Receive Billions in Subsidies New Yorkers Currently Paying More Than $4.16 Per Gallon For Regular Gas
Washington, DC – Following House Speaker John Boehner’s visit to New York this week when he called for trillions of dollars in federal budget cuts, with the gaping exception of $21 billion in subsidies to oil companies enjoying record profits, U.S. Senator Kirsten Gillibrand today called for the elimination of the tax loopholes that currently subsidize big oil companies.
Last week, the five largest, most profitable oil companies in the world, BP, Exxon, Shell, Chevron and ConocoPhillips (Big 5) reported a combined $32.3 billion in first-quarter earnings, making at least 50 percent more than last year. Meanwhile, New York State gas prices have skyrocketed over the past few months, leaving middle class families feeling the pain at the pump. New Yorkers are currently paying an average of more than $4.16 a gallon for regular gas.
The Close Big Oil Tax Loopholes Act would eliminate tax loopholes for the Big 5. In the last ten years, the Big 5 have recorded nearly $1 trillion in profits, as well as billions in taxpayer subsidies. These enormous revenues have gone to buying stock and issuing dividends, essentially lining the pockets of executives and shareholders, while working class and elderly Americans are being asked to sacrifice in order to balance the budget.
“This is a step in the right direction for both America’s energy and economic policies,” Senator Gillibrand said. “Today, New York’s families are paying more than $4 per gallon to fill up their gas tanks, while the Big 5 are using taxpayer dollars to increase their bottom line. Our families are already struggling in this difficult economy, and we must take action against rising gas prices. This legislation will force the world’s wealthiest oil companies to pay their fair share and simultaneously help cut our nation’s deficit.”
The elimination of existing subsidies for the Big 5 would not result in decreased oil production, as the CEO of ConocoPhillips, Jim Mulva, has testified, “With respect to oil and gas exploration and production, we do not need incentives.” However, this legislation would put an end to obviously unnecessary tax loopholes, and use those savings to reduce the federal budget.
The bill will include:
- 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.
- Limitations on deductions 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.
- Limitations on deductions for intangible drilling and development costs. This 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.
- Limitations on percentage depletion allowances 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.
- Limitations on deductions 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.
- The repeal of Outer Continental Shelf deep water and deep gas royalty relief. This 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.
- Deficit Reduction. 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.
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