Democrats See Strategy to End Big Oil Tax Breaks

A version of this article appeared in print on May 9, 2011, on page A15 of the New York edition with the headline: Democrats’ Plan Would Offset Deficit by Ending Big Oil’s Tax Breaks.

WASHINGTON — Linking two of the politically volatile issues of the moment, Senate Democrats say they will move forward this week with a plan that would eliminate tax breaks for big oil companies and divert the savings to offset the deficit.

With high gas prices and rising federal deficits in the political spotlight, senior Democrats believe that tying the two together will put pressure on Senate Republicans to support the measure or face a difficult time explaining their opposition to voters whose family budgets are being strained by fuel prices.

President Obama and some top Congressional Democrats have said they want to take some of an estimated $21 billion in savings from ending the tax breaks and steer it to clean energy projects. But the Senate’s Democratic leadership is calculating that using it to cut the deficit instead makes it a tougher issue politically for Republicans who are trying to burnish their conservative fiscal credentials.

“Big Oil certainly doesn’t need the collective money of taxpayers in this country,” said Senator Robert Menendez, Democrat of New Jersey, one of the authors of the legislation that Democrats intend to showcase. “This is as good a time as any in terms of pain at the pump and in revenues needed for deficit reduction.”

As part of the effort to build support for the measure, the Senate Finance Committee has invited multinational oil company executives to discuss the tax subsidies and other government incentives at a hearing on Thursday.

Many Republicans are certain to oppose the proposal, making it hard for Democrats to assemble the 60 votes that will be needed to break a filibuster, given the resistance from energy-state senators in their own ranks. Republicans have characterized calls by Mr. Obama and Congressional Democrats to end the breaks as backdoor tax increases that will only increase gas prices.

“Instead of returning again and again to tax hikes that increase consumers’ costs, the administration and its Democrat allies in Congress should open their eyes to the vast energy resources we have right here at home and to the hundreds of thousands of jobs that opening them up could create,” Senator Mitch McConnell of Kentucky, the Republican leader, said in a statement.

Hoping to reinforce that point, House Republicans are set to approve legislation this week that would expand the coastal areas where energy companies can explore and produce oil and gas.

Democrats say they tailored their bill to make it harder for Republicans to reject after Senator Harry Reid, the majority leader, and Mr. Menendez wrote to colleagues last week that their goal was to “proceed with a bill that maximizes our chances of garnering bipartisan appeal.”

As currently written, the bill would apply only to what Democrats have identified as the five largest and most profitable oil companies: BP, Exxon Mobil, Shell, Chevron and Conoco Phillips. Those involved in writing the measure said they restricted it to those firms by using a definition that applied to major oil companies with certain levels of revenue. Democrats say they believe that approach thwarts Republican arguments that eliminating the tax breaks could affect more than just the major oil firms.

The proposal would end a series of tax advantages for the five companies and produce about $21 billion over 10 years, Democrats say.

More than $12 billion would come from eliminating a domestic manufacturing tax deduction for the big oil companies, and $6 billion would be generated by ending their deductions for taxes paid to foreign governments. Critics suggest that the companies have been able to disguise what should be foreign royalty payments as taxes to reduce their tax liability. The bill would also deny the companies the ability to deduct some intangible drilling and development costs, producing another $2 billion.

Some Congressional Democrats, including Senator Max Baucus, the Montana Democrat who heads the Finance Committee, have proposed using the revenue from the elimination of the tax breaks to promote alternative fuels and provide incentives to purchase fuel-efficient vehicles. Mr. Obama has made similar suggestions, and in his regular address over the weekend he again called for more emphasis on the development of clean energy.

But top Democrats said that reallocating the money that way would allow Republicans to accuse Democrats of picking winners and losers in the energy industry. At the same time, the strict focus on the deficit could cause unrest among Democrats who support alternative energy projects.

Last week’s sudden dip in oil prices, which could show up at the pump soon, might also sap momentum behind the tax measure.

Don Stewart, a spokesman for Mr. McConnell, noted that Democrats typically criticize oil companies when gas prices are high. He pointed to remarks made by Democrats at a 1974 Senate hearing that echoed the current talk of soaring profits and industry bonanzas.

“These guys need a new playbook,” Mr. Stewart said.

But Democrats said they see themselves as occupying the political and policy high ground in this case. They noted that top Republicans like Speaker John A. Boehner and Representative Paul D. Ryan, the Wisconsin Republican who is chairman of the House Budget Committee, have suggested that industry subsidies might have to be curbed.

Even talk of Republican delaying tactics does not seem to disturb Democrats who are eager to engage in a fight about oil.

“I am happy to have this debate on the floor for days,” Mr. Menendez said.

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