House Democrats drew on their new majority Thursday to pass an energy bill that would repeal roughly $14 billion in subsidies and royalty relief for the oil and natural-gas industry called "unwarranted" corporate welfare doled out by the last Congress.
The House voted largely along party lines to pass "Creating Long-Term Energy Alternatives for the Nation" on a 264-123 vote. The bill is one of several legislative initiatives in the Democratic leadership's agenda for their first 100 hours in power.
The bill signals a willingness by Democrats to target record oil-and-gas industry profits to fund other government spending initiatives and an altered political landscape for oil companies that previously benefited from tax cuts and pro-development policies when Republicans were in the majority.
Rep. John Yarmouth, D-Kentucky, supported the bill, called the subsidies "a huge welfare check to big oil companies." Other Democrats said the tax breaks at a time when oil companies are reaping the benefits of record-setting oil prices was fiscally irresponsible.
But Republicans called the prospect of raising taxes on domestic energy companies at a time of tight global energy supplies and placing these companies at a disadvantage to overseas oil companies "crazy."
"We do not need to make American energy less competitive than energy produced overseas," said Rep. Dennis Hastert, R-Ill.
Fixing Royalties, eliminating subsidies
The legislation would impose a surcharge on oil produced by big integrated oil companies holding royalty-free leases in the Gulf of Mexico.
Companies that lease federal lands and waters typically pay fees, known as royalties, to the federal government based on a percentage of the oil and gas that they produce. But more than 1,000 leases signed during the Clinton administration for deep-water drilling in the Gulf of Mexico excluded royalty fees, allowing companies to walk away with the entire profit from the sale of oil and gas produced when prices soared. Democrats want those so-called royalty payments inserted into the existing contracts. See recent article.
The bill would create a penalty for companies that refuse to give up their royalty-free leases a $9 tax on each barrel of oil pumped out of the Gulf when market prices close above $34.73. Companies would pay a tax of $1.25 per million British thermal units on natural gas production when prices climb above $4.34 per million Btu.
The fees, estimated to generate more than $6 billion over 10 years, would be funneled into an alternative-energy fund Democrats envision being used to finance new solar, wind and biofuel projects. Companies holding the leases would also be barred from bidding on future leases offered by the Department of the Interior unless they renegotiate their contracts.
"These are public resources," said Rep. Nick Rahall, D-W.V., chairman on the House Resources Committee and a co-author of the bill. Rahall, who promised future hearings and investigations into the government's royalty programs, called the lost royalties "an unwarranted giveaway to public companies for what they would do anyway."
In fiscal year 2006, oil and gas companies received over $77 billion from the sale of oil and gas produced from federal lands and waters and paid the federal government about $10 billion in royalties, according to a new report released Thursday by the Government Accountability Office.
Republicans also expressed concern that invalidating legally binding contracts would set a dangerous precedent. Rep. Don Young, R-Alaska, said the royalty contracts dispute should be resolved in court. The Bush administration said Wednesday it supports "voluntary" efforts to alter the leases.
The Democratic bill would also eliminate royalty relief given for oil and gas produced from ultra-deep wells drilled in the Outer Continental Shelf granted over the next five years and royalty relief for Alaskan producers included in the Energy Policy Act of 2005.
Two other provisions in the bill would repeal tax breaks passed by the last Congress. The bill would bar the oil and gas industry from employing a tax deduction granted for all domestic manufacturers in a 2004 tax package. The energy sector would face an effective corporate tax rate of 35% rather than the 32% put in place in 2004. This change in tax law would generate an additional $7.6 billion for federal coffers over the next decade.
Rep. Jim McDermott, D-Wash., called the original tax break an unnecessary $1 billion a year "boondoggle" for big oil companies.
Rep. Jim McDermott, D-Wash., called the original tax break an unnecessary $1 billion a year "boondoggle" for big oil companies.
Additionally, the legislation would extend the period major oil companies have to amortize geological costs associated with drilling to seven years, rather than the five years granted in the 2005 energy bill. The provision would generate $107 million for the Treasury over 10 years, according to the Congressional Budget Office.
GOP opposes bill, denounces process
Republicans expressed their displeasure how Democrats brought the bill to the floor. The bill was crafted by Democratic leadership outside of the committee process where members are typically permitted to debate legislation and offer amendments. Republicans also criticized what they viewed as the limited reach of the bill, claiming it would do little to address the need for energy supplies or bring down prices at the pump.
"I don't think it's a serious bill," said the Republican Whip Roy Blunt, R-Mo. "This should be a premier issue for this Congress," he said, adding "this doesn't even take a significant step in solving (the problem of energy independence)."
Democrats countered that the bill is a "beginning," with further energy legislation expected in upcoming months, and displays Democrats' commitment to alternative energy sources.
"We can now place some $14 billion to support clean energy," said Rep. Sheila Jackson Lee, D-Texas.
Democratic efforts to portray past tax breaks as a gift from Republicans generated ire among Senate Republicans Thursday. Sen. Charles Grassley, R-Iowa, who co-authored the tax package included in the 2005 energy bill with Sen. Max Baucus, D-Mont., pointed to the bipartisan support the provisions received when the Senate voted 85-15 on passage of the bill. In the House, 75 Democrats joined with 200 Republicans to pass the Energy Policy Act of 2005.
"The entire tax title enacted in the Energy Policy Act of 2005 had a budget score of $11.1 billion over 10 years ... $2.6 billion or approximately 18% of the package was for oil and gas production, refining and distribution," Grassley said Thursday. He dismissed House Democrats' claims that their bill was aimed at repealing "big oil tax giveaways."
Sen. Jeff Bingaman, D-N.M., chairman of the Senate Energy and Natural Resources Committee, said Thursday he has asked that the House bill be placed directly on the Senate calendar for consideration.
"I will be working on a bipartisan basis to develop an overall amendment to the House bill that will avoid legal pitfalls and provide a better financial footing for the energy and natural resources programs that are crucial to America's economic, energy, and environmental future," Bingaman said.
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