Hatch, Baucus Spar Over Impact of Repealing Oil, Gas Industry Tax Breaks
Senate Democrats used a Thursday hearing to pit Big Oil against American consumers, the deficit, and even patriotism itself. And Republicans used it to paint Democrats as out of touch on energy policy and American competitiveness.
Top executives of America’s biggest multinational companies remained mostly stoical throughout the three-hour hearing. They tried to not sound like elitist corporate types reaping billions of dollars in profits amid a weak economy while simultaneously refusing to concede that their industry doesn’t need tax deductions that they say are vital to ensure they continue investing in America.
“Right now we have a huge deficit. And that budget deficit, even though we don’t like it, it says we should cut aid to students who need to go to college,” Sen. Charles Schumer, D-N.Y., told the oil executives. “And it boils down to priorities as we have to get the deficit to a certain level. Sitting in our shoes, Mr. Mulva, do you think that your subsidy is more important than the financial aid we give to students who go to college?”
James Mulva, CEO of ConocoPhillips responded, “That’s a very difficult question, two totally different questions.”
Mulva gave Democrats some unexpected political ammunition on Wednesday when his company issued a press release that called Democratic legislation seeking the repeal of oil and gas industry tax breaks “un-American.”
Schumer – and later Sen. Robert Menendez, D-N.J., author of the “un-American” legislation – kept grilling Mulva about that release.
“Do you make those accusations lightly or did you really question our patriotism?” Menendez demanded of Mulva.
“It was not intended to be personally directed at you,” Mulva responded. “It was merely utilized in a way that we felt the tax proposals under consideration were inconsistent with the treatment of all taxpayers.” That was as close as Mulva came to an apology, which was what Menendez wanted.
Schumer asked the other four executives from BP, ConocoPhillips, Shell, and Chevron to raise their hands if they thought the legislation that repeals oil and gas tax breaks was un-American. Not surprisingly, none of them did.
But Sen. Pat Roberts, R-Kan., offered up an example he found to be un-American. He cited a small refinery in Billings, Mont., that’s partly owned by Exxon and partly owned by Citgo, a state-owned Venezuelan company. Roberts said he spoke with an employee at that refinery who said repealing oil and gas tax breaks would hurt the American-owned part of that refinery but not the part owned by the anti-American country. “Excuse Mr. Chairman, but I call that sort of un-American,” Roberts said.
Even though they stayed away from the patriotism talk, the executives did underscore – both in response to mainly Republican questions but also unsolicited – that repealing the tax breaks would drive investment away from the United States. Shell President Marvin Odum made that point most often. His company has been a leader in new drilling activity since BP's Gulf of Mexico oil spill and in drilling projects in Alaska, so his comments carry particular significance.
“The current tax structure is globally competitive,” Odum told the panel. “Changing that would drive investment away.”
In response to a question by Sen. Orrin Hatch, R-Utah, most of the executives said that legislation repealing the tax breaks could make gasoline prices higher.
“Raising taxes on the process raises the cost of crude oil, and the cost of crude oil is the prime ingredient in gasoline,” said Chevron CEO John Watson. “Raising our taxes would increase the price of gasoline.”
The hearing provided a forum for those types of exchanges, which allowed politically vulnerable senators like Hatch to make a point that might help his reelection campaign. Similarly, two Democrats up for reelection, Menendez and Sen. Debbie Stabenow, D-Mich., lamented over high gasoline prices and derided Big Oil's profits.
What the hearing lacked was substantive debate on the difference between the tax breaks and what they did for each company.
Toward the end of the hearing, Senate Finance Chairman Max Baucus, D-Mont., asked the executives if they would negotiate with him on reforming the overall tax code. They all said they would -- so long as they would not be singled out as an industry.
Thursday’s hearing signaled a rough start to what will be a long and arduous conversation about tax reform and the oil industry’s role in it.
“This is going to be incredibly difficult,” Baucus told the executives. “It’s going to require good faith of everyone going forward. It’s going to be shared. Everyone is going to have to give in here and there for the greater good.”
This article appears in the May 12, 2011 edition of National Journal Daily PM Update.