Senate debates windfall profits tax on oil

Published 5:37 pm Tuesday, June 10, 2008

With gasoline prices topping $4 a gallon, Senate Democrats want the government to grab some of the billions of dollars in profits being taken in by the major oil companies.

Senators were to vote Tuesday on whether to consider a windfall profits tax against the five largest U.S. oil companies and rescind $17 billion in tax breaks the companies expect to enjoy over the next decade.

“The oil companies need to know that there is a limit on how much profit they can take in this economy,” said Sen. Richard Durbin of Illinois, the Senate’s No. 2 Democrat, warning that if energy prices are not reined in “we’re going to find ourselves in a deep recession.”

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Democrats are going to have to overcome staunch Republican opposition to any new taxes on the oil industry. The five largest U.S. oil companies earned $36 billion during the first three months of the year.

Majority Leader Harry Reid, D-Nev., will need 60 votes Tuesday to proceed with the oil tax legislation in the face of a threatened GOP filibuster. If he doesn’t get 60, he likely will pull the bill from the floor.

Only last week, Reid was forced to withdraw a measure aimed at addressing global warming, falling short of the 60 votes needed to advance that legislation.

The Democrats’ energy package also would:

— Make oil and gas price gouging a federal crime, with stiff penalties of up to $5 million during a presidentially declared energy emergency.

— Authorize the Justice Department to bring charges of price fixing against countries that belong to the OPEC oil cartel.

— Require traders to put up more collateral in the energy futures markets to curb speculation.

Republican leader Mitch McConnell of Kentucky has acknowledged that Americans are hurting from the high energy costs but strongly opposes the Democrats’ response and has ridiculed those who “think we can tax our way out of this problem.”

Oil executives, testifying before Congress last month, called the proposed taxes “punitive” and warned that they would discourage domestic oil and gas exploration and production, possibly causing prices to rise instead of fall.

The American Petroleum Institute, which represents the major oil companies, has been reminding lawmakers that in the early 1980s, when the government imposed windfall profits taxes on oil companies domestic oil production dropped and imports increased.

Democrats reject the comparison.

The Senate proposal would impose a 25 percent tax on profits over what would be determined “reasonable” and would allow oil companies to avoid paying the tax if they invest the money in alternative energy projects or refinery expansion.

The tax breaks that would be rescinded, given by Congress over the past five years, are expected to save the five largest oil companies about $17 billion over the next 10 years. The Democratic proposal would funnel the money into tax incentives for renewable energy sources such as wind and solar, and to promote energy efficiency and conservation.

Most Senate Republicans have a different approach to dealing with the growing energy crisis — pump more oil and gas.

The GOP energy plan, rejected by the Senate last month, calls for opening a coastal strip of the Arctic National Wildlife Refuge in Alaska to oil development and to allow states to opt out of the national moratorium that has been in effect for a quarter century against oil and gas drilling in more than 80 percent of the country’s coastal waters.

“Republicans by and large believe that the solution to this problem, in part, is to increase domestic production,” said McConnell.