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Democrats Seek Curbs On Big Oil Tax Breaks

by Leroy Baker,, New York

17 January 2007

As part of House Democrats’ first 100 hours legislative agenda, Natural Resources Committee Chairman Nick J. Rahall (D-WV) and Ways and Means Committee Chairman Charles Rangel (D-NY) have introduced a bill to curb taxpayer-funded subsidies to oil and gas companies and to invest those funds in renewable energy.

The Creating Long-term Energy Alternatives for the Nation (CLEAN) Act includes two components that will roll back the tax benefits and costly federal oil and gas leasing provisions included in the Energy Policy Act of 2005.

The legislation would also help to correct leases issued by the Interior Department between 1998 and 1999 – which, if left unchanged, could cost the Federal Treasury an estimated $60 billion over the next 25 years, according to the two Democrats.

"The American people are owed a fair value for the resources they own – yet, when the government gives tax breaks in the form of royalty relief to Big Oil and fails to accurately monitor its oil leasing programs, it is the American people who are footing the bill," said Rahall.

"This carefully crafted legislation will address the broken royalties system that has plagued the Interior Department, and put these payments right back where they belong – in the Federal Treasury," he added.

Rangel added:

"We are rolling back subsidies for big oil to invest in alternative energy and find solutions to our nation’s energy problem.

"These tax breaks came at a time of record profit for oil corporations and were so large that even the Bush Administration called them excessive. In order to reduce our dependency on foreign oil, we need to stop lining the pockets of oil corporations and rewarding our enemies in the Middle East."

According to Rangel and Rahall, the root of the leasing issue lies in the Deep Water Royalty Relief Act of 1995, which sought to encourage oil companies to drill in the Gulf of Mexico by allowing them to avoid paying royalties on oil and gas production of publicly owned resources. They said that this error was compounded by the Interior Department's failure to to outline a threshold in leases issued between 1998 and 1999 to cut off royalty relief when market prices were high.

The CLEAN Act would impose a fee on the holders of those royalty-free 1998-99 leases unless they renegotiate them to include royalties. In the first ten years, the Congressional Budget Office (CBO) estimates that these fees would generate $6 billion in revenue.

In addition to the 'erroneous' leases, the CLEAN Act would end oil and gas companies’ qualification for a manufacturers’ tax benefit that was enacted in 2004, but leave intact other tax incentives for oil and gas production. The legislation would also bring a slight reduction in tax benefits available for geological and geophysical costs – the cost of discovering new oil reserves – to very large, integrated companies.

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