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 seeming 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.