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.