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House rescinds tax breaks from Big Oil

WASHINGTON—The Democratic-controlled House of Representatives passed legislation Thursday that would roll back tax breaks from an oil industry that's enjoying record profits, recoup oil and gas royalty payments and create a fund to promote alternative fuels such as ethanol.

The legislation, called the Creating Long-Term Energy Alternatives for the Nation (CLEAN), fulfilled a Democratic campaign pledge to reach into the pockets of Big Oil within the first 100 hours of House business.

"Big Oil has had too much sway in the halls of Congress," said Rep. Kathy Castor, D-Fla. She argued that the new Democratic Congress "will plan for a more sustainable future."

The margin of the House vote—264 to 123—wasn't large enough to override a presidential veto. But President Bush hasn't threatened to veto the measure, and he's expected to tout alternative fuels in Tuesday's State of the Union address. The Senate is considering similar but less ambitious legislation.

By rolling back tax breaks and collecting more income from federal offshore oil and gas leases, the bill would make about $14 billion available over 10 years to a new fund for developing alternative and renewable energy sources.

While the House bill seeks to reduce America's dependency on foreign oil by investing in alternative energy resources, Republicans, the energy industry and independent experts said it wouldn't do much to reduce the country's reliance on imported oil.

"They're putting up a facade," said Rep. Devin Nunes, R-Calif.

Most independent experts say that, at best, conventional ethanol production could displace 10 percent to 16 percent of U.S. motor fuel consumption by 2030. And since the bill would remove tax incentives to explore and produce oil in the United States, it could discourage domestic U.S. oil production.

"If you want these industries to be strong in a global environment, taking away their ability to invest doesn't seem (to be) smart policy," said Frank Verrastro, director of energy programs for the Center for Strategic and International Studies in Washington. He was an energy-policy adviser in the Carter administration.

Verrastro lauded Democratic efforts to promote energy efficiency and conservation, but he said that rolling back tax breaks is better politics than energy policy.

"It's the wrong policy, but they know it resonates with voters," he said, decrying the Democrats' limited approach. "Nobody is taking it all the way through, well to wheels."

The National Association of Manufacturers warned in a Wednesday letter to lawmakers that the bill could discourage badly needed domestic production of oil and natural gas. The U.S. Chamber of Commerce warned in a similar letter that the bill "forces a continued reliance on foreign oil and transfers the nation's wealth to many unstable parts of the world."

The American Petroleum Institute, the oil sector's trade group, argued that U.S. jobs were at stake.

"By increasing taxes on domestic operations, you are reducing the return on investment that companies can earn, which increases their cost of capital," said Michael Platner, API's director of tax policy. "These tax differences could make enough difference in the cost of a project that you could drive investment overseas. It could drive jobs overseas, absolutely."

Such criticism irked Rep. Roscoe Bartlett, R-Md., one of two Republican co-sponsors of the measure.

"My (GOP) colleagues are billing this as a tax increase on oil. This is not true. It attempts to correct an omission," Bartlett said.

He was referring to a provision that seeks to force oil companies into renegotiating a royalty clause that was accidentally omitted from leases written in 1998 and 1999 for exploration and drilling on federally owned lands.

The omission, acknowledged by the Department of the Interior and subsequently reinserted into leases in later years, costs the Treasury billions in lost revenue.

Bartlett also rapped fellow Republicans for opposing a provision that would roll back a 2004 tax break treating oil companies as U.S. manufacturers. That treatment makes Big Oil eligible for a 32 percent tax rate instead of 35 percent.

"There's no reason to give a tax break to people who make $10 billion in profit per quarter," said Bartlett, adding that today's high oil prices give ample reason to explore and produce oil. "The president himself has told me that's incentive enough."

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A CLEAN PASS

At a glance, the bill's major terms would:

_Increase tax revenues by $7.7 billion from 2007 to 2017.

_Increase income from federal oil and gas leases by $6.3 billion during same period.

_Steer revenue increases from the bill into a fund to promote alternative fuels and renewable energy.

_Exclude oil and gas producers and refiners from a tax break for U.S. manufacturers. This would raise their tax rate from 32 percent to 35 percent.

_Change from five to seven years the time required for major oil companies to write off their expenses for geological research and development.

_Restore royalty payments from oil companies to the federal government that were omitted in 1998 and 1999 from leases on federal lands because of bureaucratic errors by the Department of the Interior.

_Make companies that refuse to renegotiate these lease contracts ineligible for new leases or transfer of leases. They also would face a special "conservation of resources" fee.

_Repeal some provisions of the Energy Policy Act of 2005 that provided royalty relief to oil and gas producers for high-cost drilling in the Gulf of Mexico and Alaska.

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(c) 2007, McClatchy-Tribune Information Services.

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