Amid public outcry over high gasoline prices and soaring industry profits, executives of the five largest private oil companies in the U.S. were summoned before the Senate on Thursday to justify billions of dollars in special tax breaks provided to them by the government.
CEOs from ExxonMobil Corp. (NYSE:XOM), Chevron Corp. (NYSE:CVX), ConocoPhillips (NYSE:COP), BP plc (NYSE:BP) and Royal Dutch Shell plc (NYSE:RDS.A) – collectively known as ‘Big Oil’ – were quizzed why these taxpayer subsidies (amounting to about $4.4 billion) should not be repealed, particularly when the companies recorded first-quarter profits totaling more than $35 billion on the back of sky-high crude prices.
As expected, oil company executives defended their industry at the Capitol Hill hearing, arguing that the tax benefits that they enjoy are similar to those the government provides to other industries. Therefore, it is unfair to single them out for making big profits and punish them with tax hikes.
The business leaders went on to say that they already pay plenty of taxes and scaling back the credits would discourage capital spending in domestic oil fields and gas plays, thereby resulting in less exploration and lower energy production. This, the oilmen say, will force them to look for oil elsewhere, costing American jobs, which could then push up energy prices even higher.
However, Democrats at the Senate Finance Committee hearing – who are trying to eliminate these deductions to trim down the massive federal deficit – challenged the oil companies by asking if they really deserved tax breaks even while making billions of dollars of profits each year. A number of Senate Democrats, under the leadership of President Obama, are backing legislation that would repeal about $2 billion a year in tax exemptions, adding that this would also lower gas prices by making alternative energy sources more competitive.
The Democrats insist that the firms would be highly profitable even after ceding the deductions/credits and accused "Big Oil" of spending most of their income to boost investor dividends and purchase their own stocks. According to them, only a negligible portion of the oil companies’ post-tax profits are used on exploration.
On the other hand, oil industry supporters – a group that includes many Republicans in Congress – argue just the opposite, claiming that any elimination/reduction in subsidies would be tantamount to a tax increase. They believe this will raise the cost of doing business, which would lead to even higher pump prices.
The advocates say oil companies put back earnings from tax credits into exploration and production, creating more tax dollars and increasing the supply of oil. According to the Republicans, the only way to fight high oil prices is to open up more U.S. offshore drilling areas.