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Close Big Oil Tax Loopholes Act

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Oregon's Senator Jeff Merkley:


"The current tax subsidies for the oil industry were put in place when the price of oil was $17 a barrel. Times have changed – the price of a barrel has jumped to around $100 and the most profitable Big Oil companies are pulling in $5 million in profits every hour. They don't need additional taxpayer giveaways to stay afloat.

"Today, the U.S. Senate had an opportunity to debate whether American taxpayers should continue reaching into their pockets to hand over $2 billion per year to Big Oil. America is facing tough choices about tax fairness and reducing deficits. These are serious issues that deserve a full debate and that's why I'm disappointed that this vote failed tonight."

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U.S. Sen. Robert Menendez (D-NJ) questioned oil executives from some of the largest oil companies earlier Thursday during a Senate Finance Committee hearing about oil and gas tax incentives and rising energy prices. He emphasized that in light of posting record profits for the first quarter of 2011, the Big 5 Oil companies do not need taxpayer help.


“The fact of the matter is what we have is a lot of hardworking New Jerseyans who are being hit really hard at the pump and at the same time are subsidizing these Big 5 oil companies,” said Menendez.


Top executives from five of the largest multinational oil and gas companies appeared before the committee, including John Watson, the Chairman of the Board and Chief Executive Officer of Chevron Corporation; Marvin Odum, U.S. President of Shell Oil Company; H. Lamar McKay, Chairman and President of BP America Inc.; James Mulva, Chairman and Chief Executive Officer of ConocoPhillips; Rex Tillerson, Chairman and Chief Executive Officer of Exxon Mobil Corporation.


Menendez also pressed the CEO of ConocoPhillips about the company’s claim that Democratic proposals to strip industry tax incentives are “Un-American.”


Mr. Mulva, yesterday in a press release, your company called proposals to eliminate wasteful oil subsides ‘un-American’ and I want to hear from you, do you make those accusations lightly?” Menendez continued, “Or did you really mean to question my patriotism and the patriotism of the 28 other United States senators who are cosponsors? Do you believe that President Obama is un-American because he has proposed cutting oil subsidies? Do you believe that former President Bush, Speaker Boehner, and Congressman Ryan are un-American because they have suggested cutting oil subsides?”


Mulva responded that it was not meant to be taken personally.


A webcast of the hearing is available at http://finance.senate.gov/hearings.

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Despite rising gas prices and concerns over our spiraling debt Senate Republicans opposed repealing unnecessary tax giveaways to Big Oil and paying down the deficit.

A proposal by U.S. Senator Claire McCaskill that would end certain tax breaks for the five largest oil and gas companies, currently reaping record profits, failed today on a near party line vote. Following the vote, McCaskill issued the following statement:


"There's a lot of talk about how to address our mounting national debt and high gas prices but when push came to shove, Republicans put Big Oil ahead of deficit reduction and people who are hurting," said McCaskill. "People are talking about the need for drastic measures but Republicans were unwilling to stand up to Big Oil to make a little progress. How are we going to tackle the bigger problems if Republicans couldn't find the courage to cut handouts for the most profitable companies in the history of the world? Oil companies aren't struggling. Missouri families are. I don't know how we can continue to take people seriously who say they want to address our deficit and didn't vote for this bill," McCaskill said.


The legislation would have closed tax loopholes for the largest five oil companies. In the first three months of 2011 alone, these companies (Exxon Mobil, BP, Conoco Phillips, Shell, and Chevron) made $32.2 billion in profit, while Missourians paid near record prices at the pump. Meanwhile, oil companies are pocketing billions of dollars per year in giveaways from taxpayers, amounting to a total of more than $40 billion over the past decade.


Today, McCaskill also called for an investigation into reports that indicate that U.S. oil refiners are cutting back on U.S. gasoline stockpiles in order to artificially keep prices high and inflate their bottom line while Americans are struggling to keep up with soaring gas prices. She, along with several of her colleagues, sent a letter to Federal Trade Commission (FTC) Chairman Jon Leibowitz calling for an investigation into any potential wrongdoing, as well as an assessment into the impact these actions may have on gasoline prices.

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House Speaker John Boehner’s recent comment that Congress should “take a look at” repealing tax subsidies for large oil companies is well-founded. These subsidies are a particularly poor use of taxpayer funds.


The oil and gas industry argues that their tax breaks encourage them to locate and extract

more oil and gas, allowing the industry to increase supply and thus keep energy prices down

below the level they would otherwise reach. But whatever one thinks of this argument, it

totally falls apart when oil is selling at over $100 a barrel. By any relevant measure, oil and gas companies are wildly profitable, and have huge incentives to find and sell more oil. Repealing the tax subsidies that they enjoy will not change this.


While these tax subsidies have increased oil and gas company after-tax profits to some degree,

they have not changed the fact that very little of those profits are devoted to exploring for new sources. Their managers direct most of their profits to dividends and stock repurchases. Both of these actions drive up the companies’ share prices, which also benefits managers, whose

compensation depends in part on rising stock values.


The facts speak for themselves: Among the largest five oil companies, less than 10 percent of

after-tax profits went to exploration for new oil fields during the 2005-2009 period.

Meanwhile, the percentage of net profits used to pay dividends and buy back stock was 58

percent in 2005, 73 percent in 2006, 72 percent in 2007, 71 percent in 2008 and 89 percent in

2009. These figures are high in comparison to other industries.

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Latest Title: Close Big Oil Tax Loopholes Act

Sponsor: Sen Menendez, Robert [NJ] (introduced 5/10/2011) Cosponsors (28)

Related Bills: S.258

Latest Major Action: 5/11/2011 Read the second time. Placed on Senate Legislative Calendar under General Orders. Calendar No. 42. COSPONSORS(28), ALPHABETICAL


Sen Blumenthal, Richard [CT] - 5/10/2011

Sen Boxer, Barbara [CA] - 5/10/2011

Sen Brown, Sherrod [OH] - 5/10/2011

Sen Cardin, Benjamin L. [MD] - 5/10/2011

Sen Casey, Robert P., Jr. [PA] - 5/12/2011

Sen Coons, Christopher A. [DE] - 5/10/2011

Sen Durbin, Richard [iL] - 5/10/2011

Sen Feinstein, Dianne [CA] - 5/10/2011

Sen Franken, Al [MN] - 5/10/2011

Sen Gillibrand, Kirsten E. [NY] - 5/10/2011

Sen Johnson, Tim [sD] - 5/10/2011

Sen Klobuchar, Amy [MN] - 5/11/2011

Sen Lautenberg, Frank R. [NJ] - 5/10/2011

Sen Leahy, Patrick J. [VT] - 5/10/2011

Sen McCaskill, Claire [MO] - 5/10/2011

Sen Merkley, Jeff [OR] - 5/10/2011

Sen Mikulski, Barbara A. [MD] - 5/10/2011

Sen Murray, Patty [WA] - 5/10/2011

Sen Nelson, Bill [FL] - 5/10/2011

Sen Reed, Jack [RI] - 5/10/2011

Sen Reid, Harry [NV] - 5/10/2011

Sen Rockefeller, John D., IV [WV] - 5/10/2011

Sen Sanders, Bernard [VT] - 5/10/2011

Sen Schumer, Charles E. [NY] - 5/10/2011

Sen Shaheen, Jeanne [NH] - 5/10/2011

Sen Stabenow, Debbie [MI] - 5/10/2011

Sen Tester, Jon [MT] - 5/10/2011

Sen Whitehouse, Sheldon [RI] - 5/10/2011

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To reduce the Federal budget deficit by closing big oil tax loopholes, and for other purposes.


Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,




( a ) Short Title- This Act may be cited as the `Close Big Oil Tax Loopholes Act'.


( b ) Table of Contents- The table of contents of this Act is as follows:


Sec. 1. Short title; table of contents.


Sec. 2. Findings.


Sec. 3. Sense of Senate on high gas prices.




Sec. 101. Modifications of foreign tax credit rules applicable to major integrated oil companies which are dual capacity taxpayers.


Sec. 102. Limitation on section 199 deduction attributable to oil, natural gas, or primary products thereof.


Sec. 103. Limitation on deduction for intangible drilling and development costs.


Sec. 104. Limitation on percentage depletion allowance for oil and gas wells.


Sec. 105. Limitation on deduction for tertiary injectants.




Sec. 201. Repeal of outer Continental Shelf deep water and deep gas royalty relief.




Sec. 301. Deficit reduction.


Sec. 302. Budgetary effects.




Congress finds that--


( 1 ) gas prices have risen significantly largely in response to unrest in north Africa and the Middle East, unrest that speculators are capitalizing on to increase oil futures prices and make huge profits;


( 2 ) high gas prices are hurting the quality of life of people of the United States, cutting into savings, and jeopardizing jobs and the economic recovery of the United States;


( 3 ) implementation of the regulatory reforms enacted by Congress in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203; 124 Stat. 1376) to prevent energy market manipulation and control excessive speculation has been delayed and has been threatened with funding reductions in the House of Representatives;


( 4 ) the United States is producing more oil than any time in the last 13 years and companies hold abundant inventories of oil, but the United States is still importing more than 11,000,000 barrels of oil per day and the Energy Information Administration projects that full production in all onshore and offshore areas would reduce gas prices by only 3 cents per gallon by 2030;


( 5 ) domestic refining capacity now exceeds United States demand for refined petroleum products, resulting in increased idle refinery capacity;


( 6 ) oil companies are sitting idly on approximately 60,000,000 acres of leased Federal lands and waters containing more than 11,000,000,000 barrels of oil and 59,000,000,000,000 cubic feet of natural gas;


( 7 ) the United States possesses less than 2 percent of the proven oil reserves of the world, yet consumes an unsustainable 25 percent of the oil production of the world;


( 8 ) the economy of the United States suffers huge net losses in jobs and productivity from the growing annual trade deficit in energy, due mainly to the outflow of $250,000,000,000 or more to pay for foreign oil;


( 9 ) world oil prices have risen steadily since the slow beginning of the global economic recovery and, absent major efficiency or conservation improvements or deployment of alternative fuels, those oil prices are projected to remain well above $100 per barrel or higher as world demand grows as China, India and other countries industrialize;


( 10 ) the oil production policies of cartel of the Organization of the Petroleum Exporting Countries (OPEC) are a large determinant of the world price of oil, so the economy of the United States will be affected by decisions of OPEC as long as the United States depends on oil for a significant portion of the energy consumption of the United States;


( 11 ) the major oil companies have accumulated more than $1,000,000,000,000 in net profits over the last 10 years and collected more than $40,000,000,000 in tax breaks during the same period, but have invested negligible amounts of those funds into research and development of the production of clean and renewable fuels made in the United States, leaving consumers with few if any choices at the pump; and


( 12 ) in the Energy Independence and Security Act of 2007 (42 U.S.C. 17001 et seq.), Congress increased fuel economy standards for the first time in 30 years and established ambitious requirements for domestic biofuels, actions that have reduced oil consumption and reduced upward pressure on gas prices.




It is the sense of the Senate that--


( 1 ) the President and Administration should be commended for recognizing the severity of high gas prices and for taking appropriate actions to help reduce gas prices, including actions--


( A ) to move forward with expeditious and responsible domestic production in the Gulf of Mexico and elsewhere;


( B ) to form a Task Force led by the Department of Justice to investigate and eliminate oil and gas price gouging and market manipulation;


( C ) to establish a national oil savings goal to cut imports by 33 percent by 2025;


( D ) to call for 1,000,000 electric vehicles to be on the road by 2015;


( E ) to harmonize corporate average fuel standards under section 32902 of title 49, United States Code, (CAFE) and carbon pollution standards to achieve 1,800,000,000 barrels in oil savings from new vehicles built before 2017, and working with stakeholders to increase those savings from future year vehicles;


( F ) to establish the National Clean Fleets Partnership and Green Fleet Initiative to reduce diesel and gasoline use in fleets by incorporating electric vehicles, alternative fuels like natural gas, and efficiency measures; and


( G ) to clarify and expand the use of E-15 fuel for new motor vehicles;


( 2 ) Congress should take additional actions to complement the efforts of the President, including enacting provisions--


( A ) to encourage diligent and responsible development of domestic oil and gas resources onshore and off-shore;


( B ) to eliminate subsidies for major oil and gas companies and use the savings to promote research, development, and deployment of affordable alternative fuels and vehicles;


( C ) to give consumers more choices at the pump and incentives for buying vehicles that displace petroleum consumption; and


( D ) to direct and fund the Commodity Futures Trading Commission and the Federal Trade Commission to rapidly implement the energy consumer protection requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203; 124 Stat. 1376);


( 3 ) the Organization of the Petroleum Exporting Countries (OPEC) should contribute to the stabilization of world oil markets and prices and reduce the burden of high gasoline prices borne by the consumers in the United States by using existing idle oil production capacity to compensate for any supply shortages experienced in member countries; and


( 4 ) the economic, environmental, and national security of the United States depend on a sustained effort to drastically reduce and eventually eliminate the dependency of the United States on oil.






( a ) In General- Section 901 of the Internal Revenue Code of 1986 is amended by redesignating subsection ( n ) as subsection ( o ) and by inserting after subsection ( m ) the following new subsection:


`( n ) Special Rules Relating to Major Integrated Oil Companies Which Are Dual Capacity Taxpayers-


`( 1 ) GENERAL RULE- Notwithstanding any other provision of this chapter, any amount paid or accrued by a dual capacity taxpayer which is a major integrated oil company (as defined in section 167( h )( 5 )( B )) to a foreign country or possession of the United States for any period shall not be considered a tax--


`( A ) if, for such period, the foreign country or possession does not impose a generally applicable income tax, or


`( B ) to the extent such amount exceeds the amount (determined in accordance with regulations) which--


`( i ) is paid by such dual capacity taxpayer pursuant to the generally applicable income tax imposed by the country or possession, or


`( ii ) would be paid if the generally applicable income tax imposed by the country or possession were applicable to such dual capacity taxpayer.


Nothing in this paragraph shall be construed to imply the proper treatment of any such amount not in excess of the amount determined under subparagraph (B).


`( 2 ) DUAL CAPACITY TAXPAYER- For purposes of this subsection, the term `dual capacity taxpayer' means, with respect to any foreign country or possession of the United States, a person who--


`( A ) is subject to a levy of such country or possession, and


`( B ) receives (or will receive) directly or indirectly a specific economic benefit (as determined in accordance with regulations) from such country or possession.


`( 3 ) GENERALLY APPLICABLE INCOME TAX- For purposes of this subsection--


`( A ) IN GENERAL- The term `generally applicable income tax' means an income tax (or a series of income taxes) which is generally imposed under the laws of a foreign country or possession on income derived from the conduct of a trade or business within such country or possession.


`( B ) EXCEPTIONS- Such term shall not include a tax unless it has substantial application, by its terms and in practice, to--


`( i ) persons who are not dual capacity taxpayers, and


`( ii ) persons who are citizens or residents of the foreign country or possession.'.


( b ) Effective Date-


( 1 ) IN GENERAL- The amendments made by this section shall apply to taxes paid or accrued in taxable years beginning after the date of the enactment of this Act.


( 2 ) CONTRARY TREATY OBLIGATIONS UPHELD- The amendments made by this section shall not apply to the extent contrary to any treaty obligation of the United States.




( a ) Denial of Deduction- Paragraph ( 4 ) of section 199( c ) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:


`( E ) SPECIAL RULE FOR CERTAIN OIL AND GAS INCOME- In the case of any taxpayer who is a major integrated oil company (as defined in section 167( h )( 5 )( B )) for the taxable year, the term `domestic production gross receipts' shall not include gross receipts from the production, transportation, or distribution of oil, natural gas, or any primary product (within the meaning of subsection ( d )( 9 )) thereof.'.


(B) Effective Date- The amendment made by this section shall apply to taxable years beginning after December 31, 2011.




( a ) In General- Section 263( c ) of the Internal Revenue Code of 1986 is amended by adding at the end the following new sentence: `This subsection shall not apply to amounts paid or incurred by a taxpayer in any taxable year in which such taxpayer is a major integrated oil company (as defined in section 167( h )( 5 )( B )).'.


( b ) Effective Date- The amendment made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2011.




( a ) In General- Section 613A of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:


`( f ) Application With Respect to Major Integrated Oil Companies- In the case of any taxable year in which the taxpayer is a major integrated oil company (as defined in section 167( h )( 5 )( B )), the allowance for percentage depletion shall be zero.'.


( b ) Effective Date- The amendment made by this section shall apply to taxable years beginning after December 31, 2011.




( a ) In General- Section 193 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:


`( d ) Application With Respect to Major Integrated Oil Companies- This section shall not apply to amounts paid or incurred by a taxpayer in any taxable year in which such taxpayer is a major integrated oil company (as defined in section 167( h )( 5 )( B )).'.


(B) Effective Date- The amendment made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2011.






( a ) In General- Sections 344 and 345 of the Energy Policy Act of 2005 (42 U.S.C. 15904, 15905) are repealed.


( b ) Administration- The Secretary of the Interior shall not be required to provide for royalty relief in the lease sale terms beginning with the first lease sale held on or after the date of enactment of this Act for which a final notice of sale has not been published.






The net amount of any savings realized as a result of the enactment of this Act and the amendments made by this Act (after any expenditures authorized by this Act and the amendments made by this Act) shall be deposited in the Treasury and used for Federal budget deficit reduction or, if there is no Federal budget deficit, for reducing the Federal debt in such manner as the Secretary of the Treasury considers appropriate.




The budgetary effects of this Act, for the purpose of complying with the Statutory Pay-As-You-Go-Act of 2010, shall be determined by reference to the latest statement titled `Budgetary Effects of PAYGO Legislation' for this Act, submitted for printing in the Congressional Record by the Chairman of the Senate Budget Committee, provided that such statement has been submitted prior to the vote on passage.


Calendar No. 42

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