Exxon Mobil Corp. (XOM) Chief Executive Officer Rex W. Tillerson and four counterparts defended $21 billion in U.S. tax breaks that Democrats are seeking to recapture to reduce the federal deficit.
Executives from Exxon, Royal Dutch Shell Plc (RDSA), Chevron Corp. (CVX), ConocoPhillips and BP Plc (BP/) said costs may rise and gasoline prices increase if Democrats succeed in eliminating the benefits. The plan is “counterproductive,” Tillerson told the Senate Finance Committee at a hearing today in Washington.
Senate Democrats are proposing to raise oil and gas taxes by about $2 billion a year for 10 years, arguing that widening deficits are a threat to the economy and sacrifice is required. College students are giving up federal help, and so should the companies, said Senator Charles Schumer, a New York Democrat.
“We have to choose priorities and right now we have a huge budget deficit,” Schumer said to ConocoPhillips (COP) CEO James Mulva. “Do you think that your subsidy is more important than the financial aid that we give to students to go to college?”
Mulva said the question was “very difficult” to answer, and the proposal to cut the incentives will have a “very adverse impact” on the industry.
The Senate may vote on the measure as early as next week. To build their case, Democrats have cited rising gasoline prices and quarterly earnings reports that put the five companies on pace to generate more than $125 billion in profits this year, which would be a record.
Senator Tom Carper, a Delaware Democrat, said he doubts the Senate will pass the measure. Senator Mary Landrieu, a Louisiana Democrat, has said she planned to oppose the bill.
The Democrats’ proposal would raise about $13 billion by blocking the five largest oil and gas companies from receiving a domestic-manufacturing deduction for exploration and extraction in the U.S. Democrats have said extraction shouldn’t be considered as manufacturing. Most companies can take a 9 percent deduction for domestic manufacturing, and oil and gas companies can take a 6 percent deduction.
The Senate Democrats’ proposal would generate $6.5 billion by curtailing the oil companies’ ability to claim tax credits for royalty payments made to foreign governments. Other proposals, limited to the five largest oil companies, would limit deductions for certain drilling costs.
Oil executives are “out of touch,” Senator Jay Rockefeller, a West Virginia Democrat, said at the hearing. The industry “always prevails” in Congress, he said.
Tillerson, Mulva and the other executives said ending the tax breaks may lead to lower oil output while limiting job creation and slowing economic growth.
“A much better solution lies in permitting our industry to increase energy supplies,” said Tillerson, who also is Exxon’s chairman. “Access, not taxes, will enable us to meet the goals of increasing affordable energy supplies for Americans.”
“The reasoning put forth for repealing these tax provisions -- rising gas prices and reporting higher first quarter profit -- would set a bad precedent for future tax increases,” Hatch said.
Schumer and Senator Robert Menendez, New Jersey Democrat, pressed Mulva to apologize for calling their tax-change proposal “un-American” in a statement yesterday.
Mulva, asked if the company meant the plan’s supporters, such as Menendez or President Barack Obama, aren’t patriots, said today the statement wasn’t directed at any individual.
Exxon, the world’s largest company by market value, reported a 69 percent increase in first-quarter profit, the biggest jump in eight years. Net income rose to $10.7 billion from $6.3 billion a year earlier, Irving, Texas-based Exxon said on April 28.
Shell, based in The Hague, boosted profit 30 percent in the first quarter to $6.3 billion as crude prices gained and refining earnings doubled, the company said on April 28.
After a 29 percent rise in oil prices in the past 12 months, the five companies don’t need tax incentives to invest, Schumer said during a news conference in Washington yesterday.
“You’re going to do anything you can to find oil at these prices,” Schumer said, speaking of the five companies.
An increase in taxes for the five oil companies is unlikely to raise gas prices, which are closely tied to crude oil prices, the Congressional Research Service said in a report yesterday to Senate Democratic Leader Harry Reid of Nevada that reviewed the effects of five provisions proposed by the Democrats.
‘Hard to Separate’
“Political unrest, expectations effects on financial markets, macroeconomic growth trends, the value of the dollar and a host of other factors have contributed to fluctuations in the price of oil and gasoline,” according to the report. “Any effect due to changes in the tax treatment of the oil industry would be hard to separate from the changes due to other factors.”
In the House, Democrats introduced legislation that would increase fees on oil companies if they don’t produce in areas where they hold leases. The bills also would require new safety standards for drilling and promote natural-gas powered trucks with tax credits.
House Democrats also are seeking to repeal about $31 billion in tax breaks for the oil industry. Minority Leader Nancy Pelosi, a California Democrat, said the money should go to the deficit and to pay for clean energy programs.
The Republican-led House yesterday passed legislation that would require U.S. decisions on drilling permits within 60 days, as a part of an effort to increase oil production in the Gulf of Mexico.
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