Thank goodness for people like Rep. Jim McDermott (D-Wash). A new bill introduced by McDermott looks to exempt oil and gas companies from a 2004 tax break provided to businesses for "domestic production activities". The original law, as currently written would provide big oil with $700,000,000 in ANNUAL tax breaks through 2016.
And the best part of this original law? Despite the fact that its original intent was to help out US companies that were hurt financially by the required reversal of prior laws relating to export-related tax breaks for companies (due to trade agreements), these original rules had no impact on big oil.
How nice - other companies and industries were hurt by the repealing of a law, so while finding a fix, Congress decided to throw a $5 Billion (yes, that is a `B") bone to the oil industry. But there is no price gouging and the oil industry is really looking out for We the People.
Since this is tax related, I will try and keep it so that you, the reader, won't doze off. But this merits tracking, and certainly I want to keep this as part of my grand plan to overhaul the tax code and make it more fair for We the People.
Background (brief - I promise)
As noted in the text of McDermott's bill, the US has (for years) provided export-related benefits to US companies. However, oil and gas companies were specifically exempt from these benefits (remember this tidbit). Somewhat recently, these benefits were successfully challenged by the European Union on grounds that they were not in line with trade agreements.
In response to this, Congress passed a new law in 2004 that gave a substantial tax deduction (I won't bore you with details here) to companies for "domestic production activities". And as part of this law, guess who got to take part in this very generous tax deduction, even though they didn't lose a dime from the repeal of the old benefits? Yup, the oil and gas companies.
According to the press release by McDermott and Sen. John Kerry:
In 2004, Congress sought to protect U.S. manufacturers who export from possible WTO sanctions over a broad, international trade dispute. To do this, Congress first repealed a complex tax provision called the FSC/ETI regime. Then, to shield U.S. companies who exported under FSC/ETI from a sudden, massive tax increase, Congress passed a corporate tax bill which gradually reduced taxes over several years, and was intended to help domestic manufacturers struggling to sell their products overseas. FSC/ETI regime never applied to Big Oil; in fact, Congress explicitly precluded oil company exports from the FSC/ETI benefit. However, when a new law was passed, Republicans made sure Big Oil got a break they didn't earn, deserve, or need.
Until now, there was never a quantification of the benefits to the oil companies, and a study was done by the Joint Committee on Taxation to see how much of a benefit they were getting.
So why is this important now?
Well, in addition to the obvious rising gas prices, we can't forget how the oil executives went before Congress to defend the record profits
under oath despite the fact that Ted Stevens refused to swear them in first. Remember this line of crap?
The executives blamed the Gulf Coast hurricanes, which shut down refineries, and global forces, including rising crude-oil prices. They argued that their business is cyclical, citing weak profits in the late 1990s.
Or what about the cushy compensation packages that oil execs receive?
And of course we can't forget the 2005 legislation that showered the energy industry with billions of dollars in tax breaks. Not to mention the numerous generous tax breaks that this industry has already seen before Bu$hCo came in and acted like Santa Claus.
Fast forward to now.....
The study by the Joint Committee on Taxation was commissioned by McDermott and Sen. John Kerry (who should get some props for putting forth a similar bill in the Senate) was released yesterday. This study was to supplement the legislation and show how much of a "reverse windfall profits tax" this was for Big Oil. And guess, what? He was right. According to the release on McDermott's web site:
New revenue data from the independent congressional Joint Committee on Taxation, JCT, requested by Senator John Kerry (D-Mass.) and Rep. Jim McDermott (D-WA), show a gusher of subsidies- as much as $700 million every year- is flowing to oil and natural gas companies at the expense of U.S. taxpayers, because of an unearned and necessary windfall given away by the Republican majority. The price tag exceeds $5 billion over ten years - at least $1.4 billion more than previous estimates.
Rep. Jim McDermott (D-WA) said: "Big Oil is winning a multi-million dollar lottery every day of the week, every day of the year, because the game has been rigged by a Republican Congress and President. Big Oil does not deserve the multi-billion dollar tax subsidy, but Republicans gave it to them, anyway."
"It's clear every time people fill up at the pump that the Bush energy policy is not working. The fact that American taxpayers have to give away more money to oil companies as their profits increase is absurd - it's like a kick in the stomach on top of a $60 tank of gas," said John Kerry.
But if the oil companies are getting this money, surely it is keeping gas prices down, right?
So with all this, you would think that more money to the oil companies for "domestic production" would at least make it so that gas prices aren't already at $4 per gallon. Since this does relate to "production", then surely the more that is produced, the more there is available and the lower prices would be. Right?
Adding insult to injury, the lawmakers pointed out that the windfall tax subsidy actually increases as oil and gas prices increase.
This is because the tax break relates to income from domestic production or taxable income in general. So the higher the gas prices, the more income to the oil companies. And the bigger the tax break they get to take.
We can only hope that McDermott's and Kerry's legislation finds some sanity on the Republican side with a few "true" conservatives or deficit hawks signing on. Otherwise, this will be a longer, more costly and difficult summer for We the People.