WASHINGTON – U.S. Senator Chris Coons (D-Del.) today cosponsored a measure that would end tax breaks for the nation’s five largest oil companies and instead use the $21 billion in savings that would recouped over the next 10 years for reducing the federal deficit.
“If Delawareans are paying nearly $4 a gallon at the pump, they shouldn’t need to be subsidizing the oil companies with their taxes as well,” Senator Coons said. “The big five oil companies made nearly $36 billion in profits in just the first three months of this year, but instead of it resulting in lower prices at the pump, Delawareans are being forced to pay more and more each day. That’s unacceptable.”
Exxon just reported its best quarter since 2008 and BP saw its profits increase by 17 percent to $7.1 billion dollars. Over the last ten years, the five major oil companies have reaped nearly $1 trillion in profits. Meanwhile, oil companies continue to take advantage of massive tax loopholes to further line their pockets. Oil production is one of the most heavily subsidized industries in the U.S., with taxpayers giving away more the $4 billion in tax breaks to Big Oil every year.
“At a time of trillion-dollar deficits, we cannot afford tax breaks for oil companies,” Senator Coons said. “They will succeed without the help of taxpayer subsidies.”
According to a recent report from Citizens for Tax Justice, Big Oil companies spent most of its 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.
Senator Coons is a member of both the Senate Budget Committee and the Senate Energy and Natural Resources Committee.
The Close Big Oil Tax Loopholes Act would:
Modify foreign tax credit rules applicable to major integrated oil companies that 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.
Limit the 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.
Limit the 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.
Limit the 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.
Limit the 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 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.
Reduce the deficit.
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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