Executives of the five largest U.S. oil companies received a harsh public flogging for near-record gas prices coupled with high profits for the first quarter of the year at a Senate Finance Committee hearing Thursday.
Democrats excoriated the executives for rejecting calls to end tax breaks for the industry when they stand to make record profits and gas prices are reaching an all-time high at the pump.
“Gas prices are up more than a dollar a gallon from last summer, said Sen. Max Baucus (D-MT), who chairs the panel. “In fact, families will pay an average of about $825 more for gas this year than they did last year … at the same time, the largest oil companies, collectively earned over $35 billion in profits in the first quarter of 2011 alone. At that pace, 2011 will be there most profitable year ever.”
The executives pushed back against the calls for cuts in tax subsides, arguing they unfairly single out oil companies from other industries that receive similar tax breaks and would harm efforts to explore untapped domestic oil preserves in North Dakota, Montana and elsewhere around the country.
Rex Tillerson, chief executive of ExxonMobil, called the Democratic proposals “misinformed and discriminatory” and said they could actually lead to higher prices and undermine U.S. competitiveness with foreign oil companies, not to mention, harm economic growth.
Tillerson joined the top executives of BP, Chevron, ConocoPhillips and Shell, who were all forced to answer tough questions from senators. All of those oil companies, except BP which suffered a loss because of the gulf oil spill, saw first quarter profits spike because of the increase in world-wide crude oil prices.
Democrats, led by Sens. Robert Menendez (D-NJ) and Chuck Schumer (D-NY), want to use the roughly $2 billion a year in tax savings achieved by yanking tax breaks for the five largest oil companies to pay down the deficit. Instead of the House Republican plan to reduce the deficit by cutting Medicare payments to seniors, these Senate Democrats argue Congress should be looking for ways to produce more revenue and are eying the tax breaks as ripe for elimination.
In one of the more colorful moments of hearing, Sen. Orrin Hatch (R-Utah), came to the oil companies’ defense. He showed a large poster of a dog on top of a pony, a less than subtle way of accusing Democrats of running a dog-and-pony show and using high gas prices to score political points by accusing the top oil companies of greedy corporate behavior.
“Unfortunately, politicians and their media allies decide to exploit high gas prices for political gain,” Hatch said.
Increasing taxes on a profitable industry would do nothing to bring down prices at the pump, Hatch said, and would unfairly target a profitable industry for being profitable.
“I’m not going to haul in George Clooney and have him address his high income” just because he has a popular blockbuster hit, Hatch said.
Later in the hearing, Schumer countered Hatch’s dog-and-pony show attack line, with an equally colorful description.
“One of my colleagues suggested that this is a dog-and-pony show,” he said. “Well, you’d have an easier time convincing the American public that a unicorn flew in here than [the argument] that these big oil companies need a tax break,” he said.
Schumer also demanded an apology from ConocoPhillips CEO James Mulva for sending out a news release criticizing the proposal to end oil subsidies as “un-American.”
“Mr. Mulva, do you think your subsidies are more important than student financial aid,” Schumer asked.
Mulva responded that the two issues were totally different and that the proposal to end the subsidies would have an adverse impact on oil exploration and gas prices, before Schumer cut him off again and asked the rest of the executives to raise their hand if they agreed that advocating an end to oil tax breaks was “un-American.”
None of the executives raised their hands.
Marvin Odum, president of Shell Oil Company, earlier argued that the oil companies have no real control over what Americans pay at the pump because so many factors, including weather, the weakness of the dollar and international political and economics, affect the price of crude oil. All five company executives argued that disrupting a stable and predictable tax structure would impinge on their abilities to invest in more oil drilling opportunities, as well as alternative energy technologies.
Using that logic, Baucus countered, the price of gas should have gone down since the tax breaks were instituted in 2004, but the reverse has happened.
“Even without these tax breaks, these companies would clearly be highly profitable,” he said. “We can put this money to better use, and we should.”
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