PATCHOGUE — Today, Congressman Tim Bishop unveiled the Big Oil Welfare Repeal Act, new legislation to end billions in taxpayer subsidies the largest oil companies continue to receive despite sky high gas prices and record profits. Bishop’s legislation would end corporate welfare for the Big Five oil companies and reduce the deficit by nearly $13 billion.
Bishop’s legislation will repeal the “Section 199” deduction for the five largest oil companies. This subsidy, which was originally enacted to encourage oil and gas development, allows companies to deduct from their tax liability six percent of the income they derive each year from oil and gas extracted in the United States and its shores.
“I’m outraged that at $4 a gallon, Americans are still paying twice for gas: once at the pump and once on tax day,” said Congressman Bishop. “Borrowing money to pay Exxon-Mobil to drill for oil they have every incentive to drill for already is Exhibit A for wasteful government spending.”
Removing this unneeded subsidy would reduce the deficit by $12.8 billion over 10 years. Bishop said that the domestic manufacturing deduction for oil and gas distorts markets by encouraging more investment in the oil and gas industry than would occur under a neutral system. This market distortion is detrimental to long-term energy security and is also inconsistent with goals of creating a clean energy economy, reducing America’s reliance on oil, and eliminating pollution.
Bishop said that with oil approaching record-high prices, companies have all the incentive they need to develop more oil and gas deposits. He noted that while continuing to enjoy the subsidy, the largest five oil producers have directed the lion’s share of their profits into dividends and stock buy-backs. Among the Big Five oil companies, less than 10 percent of profits are reinvested into exploration of new oil deposits. Net profits directed towards dividends and stock repurchases for the Big Five oil companies were 58 percent in 2005, 73 percent in 2006, and 72 percent in 2007, 71 percent in 2008, and 89 percent in 2009.
Repealing the oil industry’s tax subsidies will not impact gas prices for American consumers. Oil is traded on a global market and each barrel of crude is sold for the same price, regardless of how much its production was subsidized. Producers receiving tax subsidies pass on that benefit to their shareholders, not to consumers.
“President Bush said in 2005 that with oil at $50 a barrel, these subsidies were unnecessary,” said Bishop. “Now that the price of oil has doubled, it is outrageous that these subsidies continue while programs that bolster our economic competitiveness and help average Americans make ends meet are facing deep cuts.”
More recently, Speaker of the House John Boehner and House Budget Committee Chairman Paul Ryan indicated that the repeal of Section 199 should be considered. Accordingly, Bishop said he is optimistic that the Big Oil Welfare Repeal Act will be considered in the House of Representatives and has called upon the Speaker to call a vote on it. Bishop opposed the creation of Section 199 when it was instituted under Republican control of the government in 2004.
Bishop unveiled the bill at the Patchogue Village Department of Public Works facility on Waverly Avenue, which houses the gas pumps used by village, school, and fire district vehicles. He was joined by Village Mayor Paul Pontieri, who described the effect high gas prices have on the Village’s budget.
“High oil prices hurt us here at the Village gas pump, but we also need to purchase asphalt and other petroleum products for road repairs and that squeezes our budget for other services,” said Mayor Pontieri. “From Patchogue’s perspective, the oil companies are doing fine: it’s time to look out for taxpayers in all levels of government.”
“We need to take a fresh look at all spending,” said Bishop. “If we didn’t have this subsidy and someone came to the House floor and introduced such a subsidy for the big oil companies, they’d be laughed out of the room. I am hopeful my colleagues will join me in ending this corporate welfare and reducing the deficit.”
Source: Rep. Tim Bishop press release dated May 2, 2011