Punishing Big Oil

WASHINGTON -
The "manager's amendment" routinely approved
by the Senate just before passage of its tax bill Nov. 17
included an unnoticed change in U.S. tax law applied to
Big Oil. It would prevent three U.S.-based companies that
produce oil abroad from continuing to reduce their U.S.
taxes by the amount they pay foreign governments in taxes.
Intended to punish the oil industry for making so much
money, the provision actually would increase American
dependency on foreign oil producers.

This basic change in policy is legislation passed in the
dead of night. It has received much less attention than the
bill's one-time change in accounting procedures, amounting
to a backdoor "excess profits" tax. Like all such punitive
tax measures, it would defeat its own intent by limiting
supply and increasing the gas pump cost.

Neither of these provisions is in the tax bill up before
the House, and they face an uncertain fate in a Senate-House
conference early next year. Nevertheless, punishment of Big
Oil was approved by a Republican-controlled Senate as the
bill passed 64 to 33 (with four dissenting Republicans and
only one objecting to its anti-oil provisions). This was
the work of Sen. Charles Grassley, the supposedly
conservative chairman of the Senate Finance Committee who
wanted his tax bill passed with the biggest margin possible.
When gasoline prices soared well over $3 a gallon earlier
this year, executives of five integrated (exploring,
refining, retailing) companies were summoned by the Senate
Commerce Committee to explain why they were making so much
money. Republican politicians were in a quandary. They
wanted to appease their constituents, but they could not
buy into Democratic plans for heavy taxation of oil
companies.

Debate on the tax bill was illusory, as is much in the
Senate today. Amendments such as Democratic Sen. Byron
Dorgan's, which in the tradition of prairie populism levied
a 50 percent excise tax if oil prices exceeded $40 a barrel,
were rejected two-to-one. Instead, Grassley went to the
back door with the accounting scheme, inflicting a one-time
$4.9 billion tax hit on the five companies that testified
on Capitol Hill: Exxon Mobil, Chevron, ConocoPhillips, Shell
Oil and BP America.

But that was not all. Grassley produced his manager's
amendment just before the bill's passage. Approved without
debate or roll call, it removed from the integrated oil
companies the foreign tax credit that has been a founding
principle of U.S. tax policy. Of the Big Five companies,
only those based in the United States -- Exxon Mobil,
Chevron and ConocoPhillips -- are directly affected. They
would be seriously disadvantaged against Russian, Chinese
and French competitors in global exploration.

This was a classic stealth amendment. It was ignored even
by the oil industry press, and the White House did not
mention it in threatening to veto any tax bill with the
accounting provision.

While there was no meaningful Senate debate, Grassley got
an earful from his Republican colleagues for joining the
oil-bashers. An Iowa farmer, Grassley is something of a
prairie populist himself. Still, he privately blamed Sen.
Olympia Snowe, a liberal Republican from Maine, for
insisting on punishing oil as her price for granting the
necessary vote to get the tax bill out of the Finance
Committee.

That raised some doubt how hard Grassley will fight his
House nemesis, Rep. Bill Thomas, in the Senate-House
conference. Whether Grassley accedes on oil, the Senate
bill has put Republicans in a difficult position of seem-
ing to knuckle under to Big Oil if they drop the Senate
provisions.

All this hardly seems justified by allegedly indecent
profits. Highest oil earnings in the third quarter of 2005
were 9.8 percent for Exxon Mobil, compared with 33.2 percent
each by Microsoft and Citigroup. According to filings with
the federal government, oil and natural gas earnings for
the second quarter of 2005 were 7.7 percent, compared with
19.6 percent for banks and 18.6 percent for pharmaceuticals.

What Chuck Grassley did in the Senate was petty politics
if he was not serious and expected to be overridden in the
House. If he was serious, Republicans should be asking
themselves why they were given their Senate majority and
what they are doing with it.

Robert Novak (Townhall.com)