The soaring price of gasoline is definitely attracting some attention these days. According to the most recent data available, it will cost you, on average, $1.065/gallon more to fill your tank this year than at the same time last year. Considering that the typical American drives 13,476 miles per year, that means that we’re spending an additional $635 at the pump in 2011. To put that into perspective, the average U.S. household member over the age of 14 (the age that the Census uses to calculate median income data) would have to spend more than a week at work just to earn enough money to pay the difference in gas prices between this year and last year.
That kind of impact has made it painful for taxpayers to reach into their wallets even as oil companies are reporting record profits and paying relatively little in taxes. Senior Democrats sense that the timing of the gas price increases, together with taxpayer ire at corporate tax breaks, may mean that the time is right to revisit tax breaks for oil and gas, a goal that has eluded them for some time (despite high level support from the President).
But wait. That would never pass in this Congress, right?
On its face, a bill that would inch up taxes on corporations, especially oil and gas, doesn’t have much of a chance. Gas prices have ebbed and flowed for years in a post 9/11 world, it’s the nature of the beast. And tax breaks for oil and gas are nothing new. We’ve been debating how those breaks affect the economy forever, it seems, with no real consensus and thus, no movement.
So what makes us think now things are any different?
How about $7 trillion? That’s the projection from the Congressional Budget Office for the federal budget deficit over the next decade if current laws remain unchanged. And it’s a number that both Democrats and Republicans are fearful of as the 2012 elections creep a little closer since, despite all of the chatter about “shared sacrifice”, many individual taxpayers feel that the burden of closing that gap is falling on them.
A bill currently in Congress would change that. The bill proposes to end certain tax breaks for the top five most profitable oil companies: BP, Exxon Mobil, Shell, Chevron and Conoco Phillips. Most significant, an existing domestic manufacturing tax deduction would be removed, as well a deduction for taxes paid to foreign governments.
The result would be an influx of tax dollars of approximately $21 billion over 10 years. That certainly won’t eliminate the deficit but it would begin to chip away at it. Eliminating the deficit is, of course, a top budget priority for many conservative Republicans, a fact that Democrats are quick to pounce on.
However, the Treasury shouldn’t start counting on those tax dollars just yet. Republicans still generally oppose the bill and it will be difficult for Democrats to garner enough votes procedurally to move forward. However, House Speaker John Boehner (R-OH) indicated in an interview to ABC News that he is not opposed to eliminating certain of the subsidies for some companies:
I don’t think the — the big oil companies need to have the oil depletion allowances. We certainly oughta take a look at it.
Boehner was clear that he was addressing the big oil companies and not all oil and gas companies. That sentiment is shared by those in many states with smaller energy companies which would explain why the “big 5″ companies were targeted in the proposed legislation. Sen. Robert Menendez (D-NJ), who has introduced a number of bills to stop oil subsidies, including the Close Big Oil Tax Loopholes Act, is hoping to win bipartisan support by focusing on the big money-makers. He said, about the subsidies:
Big Oil certainly doesn’t need the collective money of taxpayers in this country.
Big Oil, of course, has a different view and is set to fire back at critics. An Exxon spokeman, Alan Jeffers, recently announced, “We are one of the largest taxpayers in the United States.” To prove the point, Exxon released records indicating that it paid $3.1 billion in taxes in the first few months of 2011. However, as noted by CNN, that number includes taxes paid by drivers, employees and other third parties, such as federal and state gasoline taxes and payroll taxes. The real amount of taxes paid fluctuates dramatically from year to year with the actual tax rate ranging from nearly 0% (in 2009) to 35% (in 2008). Jeffers has defended Exxon’s record and characterized efforts to increase the tax burden of Big Oil as backwards, saying:
Taxes don’t create economic activity, they take from it.
Expect to hear that sentiment expressed quite a bit as the Senate Finance Committee meets to discuss tax subsidies with oil company executives on Thursday. The debate will likely continue through the beginning of summer – unless oil prices drop. We can speculate about procedure and political maneuvering all day long but my bet is that the number of votes that the Democrats can gather for its proposal will directly coincide with how high gas prices climb. Ironically, as profits for Big Oil soar, the best thing that could happen on the political front – and in the court of public opinion – is perhaps a short term drop at the pump.
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