At this hour, as crude oil futures are trading below $50 per barrel for the first time since May 2005, the U.S. House of Representatives is voting on a controversial bill that targets the oil industry with higher taxes, fees and royalties. The bill is expected to pass the House with ease. “Power Lunch” covered all the bases of the proposed legislation, hosting a debate between Sterling Burnett of the National Center for Policy Analysis and Karen Wayland of the Natural Resources Defense Council.
Before we get into the debate – a few notes on the proposed bill: first: it would effectively prohibit oil companies from receiving an income tax deduction – one that was enacted in 2004 for the domestic manufacturing sector. It also requires Big Oil to renegotiate leases issued in error in 1998 and 1999 for drilling rights in the Gulf of Mexico. If they refuse to renegotiate, they must instead pay a fee. The bill imposes another fee on all non-producing oil and gas leases in the Gulf of Mexico.
Also in the bill is $14-15 billion earmarked for the exploration and development of alternative energy.
Burnett believes we should actually “put the brakes” on alternative energies like ethanol, corn and soy diesel because of the collateral damage it creates for the poor. He points to the doubling of the price of corn in the last year as an example of how this can hurt consumers – especially the lower class.
Wayland countered that there is no guarantee any of the money that is earmarked for alternative energy is going to ethanol or corn initiatives. Although those monies have not yet been appropriated, she says there is a specific criterion that must be met before the cash is doled out. An example would be enacting energy efficiency tax credits and an increase in tax incentives for people buying hybrid cars. She also expects that a huge chunk of the $14-15 billion, if passed, will be given toward the financing of clean energies like solar and wind.
Consumers don’t care how much profit the oil companies are making “if gas is selling for $1.50 per gallon,” and nothing in the proposed bill will help the price at the pump," Burnett says. He believes the focus should be turned to more domestic production instead and says the bill, as it stands now, will leave the U.S. with a competitive disadvantage as obviously none of the fees or royalties would have an effect on international oil companies or oil-rich countries.
As for the portion of the bill that aims to take away the tax breaks that were enacted in ’04 – Burnett says it’s simply unfair as they were designed for the entire domestic manufacturing sector, not just oil. He says the Democrats are just targeting Big Oil because it’s an industry they love to hate.
The bill will likely need some tweaking to pass the Senate, but Wayland says regardless of the nuances, it shows that Congress is thinking on the right track. She says the taxpayer dollars that will be used will be well spent because they will “send a market signal” that the U.S. must wean itself off its oil addiction by no longer investing in the oil industry.