House Dems to target oil industry tax breaks

Sunday, November 19, 2006

WASHINGTON -- House Dem¿ocrats are targeting billions of dollars in oil company tax breaks for quick repeal next year. A broader energy proposal that would boost alternative energy sources and conservation is expected to be put off until later.

Hot-button issues such as a tax on the oil industry's windfall profits or sharp increases in automobile fuel economy probably will not gain much ground given the narrow Democratic majorities in the House and Senate.

Incoming House Speaker Nancy Pelosi, in an outline of priorities over the first 100 hours of the next Congress in January, promises to begin a move toward greater energy independence "by rolling back the multibillion dollar subsidies for Big Oil."

Yet the energy plan being assembled by Pelosi's aides for the initial round of legislation is less ambitious than her pronouncement might suggest.

For the most part, the tax benefits are ones that lawmakers talked of repealing this year when Congress struggled to respond to the public outcry over soaring summer fuel prices and oil companies' huge profits.

Topping the list for repeal are:

* Tax breaks for refinery expansion and for geological studies to help oil exploration.

* A measure passed two years ago primarily to promote domestic manufacturing. It allows oil companies to take a tax credit if they chose to drill in this country instead of going abroad.

Democrats say neither tax benefit should be needed for an industry reaping large profits at today's high crude oil prices.

Over 10 years, the production tax credit saves oil companies $5 billion and the refinery measure and exploration credit a total of about $1.4 billion, according to Congressional Budget Office estimates.

Other oil tax breaks probably will go unchallenged. That includes some passed by Congress only a year ago and others already targeted for repeal this year.

For example, House Democrats have no plans to change a provision that allows oil companies to avoid billions of dollars in taxes by the way they calculate inventories. The Senate this year agreed to a repeal; the effort was abandoned amid House GOP opposition and an uproar from other industries that also benefit from the tax language.

House Democrats also are shying away from tampering with more than $1 billion worth of oil- and gas-related tax breaks, enacted last year. These breaks largely benefit small companies or gas utilities rather than the major oil companies now awash in cash.

Nevertheless, the House and Senate are expected to push legislation early to force oil companies to renegotiate flawed offshore drilling leases that have allowed the companies to avoid paying federal royalties. The loss eventually could cost the government $10 billion, according to some congressional estimates.

Other prime targets of House and Senate Democrats include:

--Alleged price gouging. Proposals to create a federal price gouging law for gasoline and other fuels probably will move quickly.

--More incentives and mandates to expand the use of ethanol and biodiesel as a substitute for gasoline. Requiring oil companies to phase in retail pumps that deliver fuel that is 85 percent ethanol.

--Requiring power companies to produce a percentage of their electricity from renewable energy sources such as wind and solar power. Such a measure is a priority of Sen. Jeff Bingaman, D-N.M., incoming chairman of the Senate Energy and Natural Resources Committee.

--Extending energy efficiency tax credits approved by Congress last year. Most are scheduled to expire at the end of next year.

--Expanding a tax break for buyers of gas-electric hybrid cars and offering more incentives for automakers to build greater numbers of the vehicles.

Rep. John Dingell, D-Mich., who will take over as chairman of the House Energy and Commerce Committee, said he plans hearings on legislation to spur further production and distribution of ethanol and biodiesel, and promote conservation.

But he suggested it will take time to produce legislation. "The process is a long one. It takes hearings, it takes fact finding," said Dingell in a telephone interview.

On the Senate side, Bingaman probably will avoid writing a single broad energy bill, preferring to push through specific legislation. Among Bingaman's other goals are new incentives to spur renewable energy development and more tax breaks for conservation.

Last spring, Sen. Charles Schumer, D-N.Y., said if the country is to reduce its addiction to oil and high energy prices it needs a "crash program" to develop more alternative energy sources, dramatically increase conservation and examine "whether or not we should break up the big oil companies."

Next year, Schumer assumes the No. 3 leadership position among Senate Democrats and will be one of the party's top strategists.

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