With soaring gas prices dominating the political debate, executives from five of the biggest oil companies were paraded before the Senate Finance Committee Thursday to respond to Democratic demands that they be stripped of billions in government subsidies in bid to reduce the deficit.
Finance Committee Chairman Max Baucus, D-Mont., declared that coping with a $1.5 trillion budget deficit and runaway spending will be “incredibly difficult,” and that “everyone’s going to have to give in a little bit” – including an oil industry flush with cash.
But the oil executives fought back, defending their record profits and charging the Democrats’ call to eliminate oil tax subsidies as discriminatory and anticompetitive. They argued that if Congress really wants to increase revenues and lower gasoline prices it should open up more federal land and waters for exploration to generate more production and tax and royalty payments. Eliminating the subsidies would be harmful to the oil industry and would drive production overseas, they said.
“We have shackles on us,” said James Mulva, Chairman and CEO of ConocoPhillips. “We feel we are constrained and constricted by our opportunities. Give us access to the land. Put our people back to work.”
The hearing coincided with a flurry of activity on the budget front, as the White House and congressional Republican and Democratic leaders attempt to negotiate a long term agreement for reducing spending and raising the ceiling on borrowing by the Treasury to avert the first default in U.S. history.
Senate Republicans met with Obama at the White House this morning in a search for common ground, House Speaker John Boehner, R-Ohio, continued to enunciate GOP demands, and a bipartisan group of lawmakers chaired by Vice President Joseph Biden held their third closed-door meeting at the Blair House.
Boehner told reporters that his speech in New York Monday night, warning that Republicans wouldn’t go along with raising the $14.3 trillion national debt ceiling unless the administration and Democrats agreed to $2 trillion or more in spending cuts, “clearly struck a nerve” and that “the response from the White House and from Democrats and the left has been panic and hysteria.”
“Now listen, for years Washington has gotten away with kicking the can down the road and dealing with higher deficits without ever facing the realities of government’s spending addiction,” Boehner said at a morning news conference at the Capitol. “Now, while this may be hard for the Washington crowd to accept, those days are over . . . . The American people have overwhelmingly rejected the idea of giving the president a blank check to increase the debt limit, and Republicans are listening to the American people.”
Boehner would not specify whether the $2 trillion in cuts he has called for would be over a relatively short period of time or the long term. “When it comes to savings in this effort to increase the debt limit, I’m not going to lock myself into what kind of time frame, but I clearly believe it’s time to bend the cost curve and to get America headed towards a solid fiscal foundation that we do not see today.”
Both congressional Republicans and the White House have called for $4 trillion of deficit reduction in the coming decade or more, but they are far apart on how to achieve those reductions and what to do about costly entitlement programs including Medicare and Medicaid.
Senate Republican leader Mitch McConnell told Obama on Thursday that he must agree to cut spending on federal agencies over the next two years and make significant changes to Medicare and Medicaid as part of a deal for raising the legal limit on government borrowing, according to the Washington Post..
During a White House meeting with the entire Senate Republican caucus, McConnell told the president that the battle over the debt limit is a critical opportunity to overhaul the popular health-care entitlement programs, which are projected to be the biggest drivers of future borrowing. He said a bipartisan agreement to curb entitlement costs would reassure financial markets concerned about the nation’s ability to rein in its spiraling debt, McConnell told reporters after the meeting.
“If there’s a grand bargain of some kind with the president of the United States, none of it will be usable by either side in next year’s election,” McConnell said. “That is the importance of this debt ceiling moment.”
Following a two and a half hour meeting of the six House and Senate negotiators and the Vice President at the Blair House, Biden gave another upbeat assessment of progress in those talks, “I’m convinced we can get to a significant down payment on $4 trillion we all agree has to be cut in the escalation of debt in the next 10 years,” he said. “It’s really hard.”
Republicans have repeatedly ruled out any tax increases as part of a comprehensive plan, but Senate Democrats this week pushed to eliminate $4 billion of annual subsidies to the oil and gas industry and use those savings to help cut the deficit. The Senate plans to vote on the bill sponsored by Sen. Robert Menendez, D-NJ, next week but it’s unlikely they have enough support to pass it. Republicans insist that the tax subsidies are needed to encourage oil exploration and drilling development as a way to reduce prices for consumers.
Moreover, Boehner dismissed the measure as political grandstanding that would do nothing to lower gasoline prices. “Listen, we all know that going after oil companies is easy politics,” he said. “But we also know that if this bill were to pass, it wouldn’t lower gas prices one penny.”Sen. Charles Schumer, D-N.Y., replied, “I have a news flash for the Speaker: this is a deficit reduction bill.”
With gas prices topping $4 a gallon, Baucus called the hearing to examine ending the tax breaks to ExxonMobil, Shell, Chevron, BP, and ConocoPhillips. Those Big Five companies raked in profits totaling approximately $35 billion the first quarter of this year. Democrats say that with high profits, the big oil companies would not miss tax breaks that average $4 billion per year and that they should share their profits with taxpayers instead of shareholders.
“With high deficits and debt, we have to make tough choices, but it isn’t a tough decision to end taxpayer subsidies for oil and gas companies making $35 billion in the first quarter alone,” Baucus said. “It may be fair to get at reducing the deficit by eliminating the tax breaks which don’t have much effect on your ability to produce because your profits are so high.”
Even Republican Senator Olympia Snowe of Maine, questioned if there was price point in which lawmakers should remove these subsidies.
Political theater ran high at the more than three hour hearing. Sen. Orin Hatch, R-Utah, said that Senate Democrats were conducting a dramatic dog and pony show to “score some cheap political points against unpopular oil companies.” A senate aide held up a large picture of a dog sitting on top of a pony to highlight his point.
John Boehner Accuses Democrats of “Hysteria” (CBS)
McConnell Seeks ‘Significant’ Cuts in Exchange for Raising U.S. Debt Limit (Bloomberg)
Obama, Congress Ratchet Up Deficit-Reduction Talks (Reuters)