Democrats demonize Big Oil's tax breaks to score political points

McClatchy NewspapersMay 16, 2011 

WASHINGTON — The push by Democrats in Congress to end some tax breaks for Big Oil companies wouldn't make much difference in the federal deficit, oil company profits or prices at the gasoline pump, but it could be a big political winner for them just the same.

Senate Democrats have made the punish-the-oil-industry effort the centerpiece of their economic pitch to Americans this month. They've staged a news conference at a Capitol Hill Exxon station, excoriated oil company executives at a televised Senate hearing and plan a Senate vote Wednesday on repealing the tax breaks.

They say the oil companies don't deserve the tax breaks since they're rolling in profits and that canceling them will give the Treasury much-needed revenue in a time of high federal debt.

But ending tax breaks worth $4 billion this fiscal year and $21 billion over 10 years would have little impact on budget deficits expected to reach $1.4 trillion this fiscal year and to total about $7 trillion over the next decade.

Nor are consumers suddenly likely to see lower pump prices from punishing Big Oil.

"In the near term, impact on either production or gasoline prices would be negligible in either direction, because there are other factors working," said Frank Verrastro, the director of the energy and national security program at the Center for Strategic and international Studies, a center-right Washington policy-research group.

"To go after the top five (oil companies) to me seems totally punitive. I mean there's no reason for doing that except that you don't like bigness."

The Big Five oil company profits, which totaled about $35 billion in the first quarter of this year, would only be nicked. Ending the breaks would amount to "a few percents of their profits each year," said Michael Lynch, an analyst at Strategic Energy and Economic Research Inc., a consulting firm.

"The industry would presumably invest a bit less and we'd have somewhat less domestic supply," he said. "If you ran a sophisticated computer model, you'd find gas prices a few cents higher down the road, but that's about it."

So why bother?

Politics.

"People can make an emotional connection. Voters don't have time to analyze the numbers; they have to live their lives," said Tim Hagle, an associate professor of political science at the University of Iowa.

Oil companies are convenient political targets because their profits are huge, and changes in gasoline prices, unlike consumer products, are visible to the public every day — and resented.

"If you went on a website and it said it cost 50 cents to click on some site one day and 80 cents the next day, you'd be angry. But that doesn't happen," said Sen. Mark Begich, D-Alaska. "But you see those gasoline prices all the time."

On May 6, the Lundberg Survey, considered the leading authority on gas prices, reported that the average price of regular self-service gasoline nationwide hit $4 a gallon, just below the July 2008 record of $4.11.

So Democrats tee off on Big Oil.

Leading the Senate charge is Sen. Charles Schumer, D-N.Y., who argued that ending the tax breaks is "a twofer. We can stop padding the profits of big oil companies and start reducing our deficit."

At a Finance Committee hearing, Schumer pointedly asked James Mulva, the chairman and chief executive officer of ConocoPhillips: "Do you think that your subsidy is more important than the financial aid we give to students to go to college?" Student aid is facing cutbacks to help lower deficits.

Mulva called that "a very difficult question for me," saying it was a legislative question. His company's job was "to provide energy in an affordable way to the American public."

Skeptics argue that Schumer is oversimplifying the issue.

If politicians want to reduce dependence on foreign oil and lower gasoline prices, they should push to build more efficient vehicles, said Sen. Mary Landrieu, a Democrat from the oil-producing state of Louisiana, "and stop introducing gimmicks such as this that might get you a few political points in the short run, but is not leading us in the right direction."

Republicans say they're not defending Big Oil, just trying to stop higher taxes.

"Raising taxes to address high energy prices is about as relevant as a person walking into a doctor's office complaining of chest pain, and having the doctor respond by offering to reupholster the patient's couch," said Sen. Orrin Hatch of Utah, the top Republican on the Senate Finance Committee.

The nonpartisan Congressional Research Service said in a May 11 report that revoking the tax breaks wouldn't raise gasoline prices. With oil prices more than $100 a barrel recently, "prices are well in excess of costs and a small increase in taxes would be less likely to reduce oil output, and hence increase petroleum product (gasoline) prices," the service said.

Democrats plan to proceed this week.

The reason, said Senate Majority Leader Harry Reid, D-Nev., seems obvious.

"Seniors are struggling," he said. "Oil companies are not struggling."

The Democrats are unlikely to prevail in either the Senate or the Republican-run House of Representatives, but since their effort is more about winning voters' favor than enacting law, they may feel that they've won simply by dramatizing the issue.

ON THE WEB

Democrats' oil tax legislation

Senate Democrats' letter on oil tax breaks

House Republican spending cuts

President Obama's 2012 budget

Congressional Budget Office budget and economic outlook

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