WASHINGTON — The Senate on Tuesday blocked a Democratic proposal to strip the five leading oil companies of tax breaks that backers of the measure said were unfairly padding industry profits while consumers were struggling with high gas prices.

Despite falling eight votes short of the 60 needed to move ahead with the bill, top Democrats said they would insist that eliminating the tax breaks to generate billions of dollars in revenue must be part of any future agreement to raise the federal debt limit.

Senate pages delivered charts about tax breaks for oil companies to the chamber on Tuesday. Democrats sought to eliminate five tax breaks, producing an estimated $21 billion over 10 years.

Senate pages delivered charts about tax breaks for oil companies to the chamber on Tuesday. Democrats sought to eliminate five tax breaks, producing an estimated $21 billion over 10 years. Stephen Crowley/The New York Times

“We have to stand up and say, ‘Enough is enough,’ ” said Senator Al Franken, Democrat of Minnesota. “While oil prices are gouging the pocketbooks of American families, these companies are on a pace for a record profit this year.”

The defeat on Tuesday was expected since most Republicans were dug in against what they saw as a politically motivated plan in advance of the 2012 elections. Democrats had hoped that directing the savings toward the deficit would make it harder for Republicans to reject it.

In the 52-to-48 vote, 3 Democrats joined 45 Republicans in opposing the bill, which was supported by the Obama administration and fiscal watchdog groups that saw the tax help for the oil industry as wasteful. Forty-eight Democrats, two independents and two Republicans backed it.

Energy-state Democrats criticized the initiative, saying it was misdirected and would do nothing to ease gasoline prices and could cost American jobs.

“Why are we harming an industry — five large oil and gas companies that work internationally, that employ 9.2 million people in the United States directly?” asked Senator Mary L. Landrieu, Democrat of Louisiana. “Why are we doing it?”

Republicans, who on Wednesday will push their own plan to open more areas to oil drilling and speed government permits, said the Democratic proposal would contribute to higher prices and increase dependence on foreign oil even though a recent Congressional Research Service report predicted any impact on prices would be negligible.

“Clearly, this is not a serious effort to address the price of gas at the pump,” said Senator Mitch McConnell of Kentucky, the Republican leader.

Under the proposal, Democrats would have eliminated five different tax breaks enjoyed by the multinational oil companies, producing an estimated $21 billion over 10 years.

More than $12 billion would have come from eliminating a domestic manufacturing tax deduction for the big oil companies, and $6 billion would have been 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.

The bill would have applied to BP, Exxon Mobil, Shell, Chevron and ConocoPhillips.

The White House lent strong support to the effort though the president in the past has recommended applying revenue generated by ending the tax breaks to the development of alternative energy sources.

“The administration believes that, at a time when it is working with the Congress on proposals to reduce federal deficits, the nation cannot afford to maintain these wasteful subsidies,” the White House said.

Senator Harry Reid, the Nevada Democrat and majority leader, portrayed the vote as one that revealed the values of Republicans.

“Instead of defending oil companies, Republicans should be defending the American taxpayer,” Mr. Reid said. “We believe this is the kind of wasteful spending that will lead to an agreement on reducing the debt.”

While most Republicans have opposed eliminating the tax breaks as a back-door tax increase, some, including Speaker John A. Boehner of Ohio and Representative Paul D. Ryan of Wisconsin, the Budget Committee chairman, have indicated a willingness to consider the idea.

Also on Tuesday, Senate Democrats wrote to the Federal Trade Commission seeking an inquiry into whether domestic oil refiners had reduced production to drive down the gasoline supply and drive up prices. “This is just another piece of the puzzle that we need to get at as we try to take away taxpayer subsidies to Big Oil and hold Big Oil accountable for whatever may be going on in the supply chain that is hurting the families that I work for,” said Senator Claire McCaskill, Democrat of Missouri.
The New York Times
May 17, 2011

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