With gasoline prices rising to levels not seen since 2008, Democrats in the US Senate are hoping to curb the federal deficit by ending tax giveaways to the richest oil companies. This week Democratic leaders announced a plan to re-direct funds for oil industry tax breaks into cutting the deficit, generating around $21 billion for deficit reduction over the course of the next decade. Through the focus on the deficit, they hope to win the support of Republicans who say they want to curb the national debt. At the same time, the legislation would channel money away from oil companies at a time when the oil industry is increasingly seen as reaping a sweet deal from high gas prices.
The proposal Democrats have put on the table would eliminate certain tax breaks for the six biggest oil companies that do business in the US: ExxonMobil, BP, Chevron, ConocoPhillips, and Shell. The legislation would accomplish a goal many Democrats have been pushing for a long time, ending the biggest taxpayer handouts to some of the most profitable companies on the planet.
“Oil companies are not using their enormous revenues and subsidies to drive down prices,” said Senator Robert Menendez of New Jersey late last month. “Instead they are pocketing these subsidies to pad outrageous profit numbers. In a budget crisis we cannot continue to subsidize Big Oil.”
President Obama also wants to eliminate major tax breaks for the oil industry, though he has said he would like to see the money go directly toward encouraging growth in renewable energy. At least some Democrats in the Senate also favor this approach, but Senate leaders believe staying focused on deficit reduction is the best way to win support from Republicans. John Boehner, the Speaker of the US House of Representatives, has already said cutting oil industry tax breaks is something that may need to be looked at.
However not all Republican lawmakers are on board with the idea. Senate Republican Minority Leader Mitch McConnell has said that instead of cutting oil industry tax breaks, Congress should focus on drilling for more US oil to meet the country’s energy needs. “If ever there was a moment to develop our [oil] resources here at home, it’s now,” said McConnell in a press statement Monday.
In fact the United States has only 2.6% of the world’s oil reserves and accounts for close to 25% of world oil demand, so increasing domestic oil production would do little or nothing to reduce gasoline prices. Since oil is sold on the global market, there is no guarantee oil extracted in the United States will actually be used in this country. More domestic drilling would also mean increasing the risk of another catastrophic oil spill like last year’s BP disaster in the Gulf of Mexico.
While what to do about high gas prices and reliance on oil has long been a divisive issue in Congress, the latest proposal from Senate Democrats ensures cutting oil tax breaks is not longer just about fairness: it’s also about getting the US out of debt. Republicans have been very vocal about the need to reduce the deficit, but are hesitant to do so by eliminating corporate tax breaks. Republican leaders instead favor other steps to reduce spending, like cutting Medicare benefits for seniors and reducing funding for enforcement of the Clean Air Act.
Now, with a concrete proposal before the Senate to reduce the deficit by cutting oil tax breaks, Republicans who oppose the idea might have a tough political fight ahead of them. It’s politically hard to say you support cutting the debt and then vote against $21 billion in deficit reduction. Convincing voters to protect oil industry profits at the expense of Medicare and environmental protections could also be a hard sell. By suggesting a cut to oil industry tax breaks, Democrats have sparked a discussion which should prove politically interesting for both parties.
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