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Congress Prepares To Quadruple Oil Taxes

Tue, 05/25/2010 - 5:04am
Stephen Ohlemacher, Associated Press Writer

WASHINGTON (AP) — Responding to the massive BP oil spill, Congress is getting ready to quadruple — to 32 cents a barrel — a tax on oil used to help finance cleanups. The increase would raise nearly $11 billion over the next decade.

The tax is levied on oil produced in the U.S. or imported from foreign countries. The revenue goes to a fund managed by the Coast Guard to help pay to clean up spills in waterways, such as the Gulf of Mexico.

The tax increase is part of a larger bill that has grown into a nearly $200 billion grab bag of unfinished business that lawmakers hope to complete before Memorial Day. The key provisions are a one-year extension of about 50 popular tax breaks that expired at the end of last year, and expanded unemployment benefits, including subsidies for health insurance, through the end of the year.

The House could vote on the bill as early as Wednesday, though Democrats were still working Monday to round up the votes. Democratic leaders had wanted to hold a vote Tuesday.

There has been little public opposition to the oil tax from the petroleum industry. But the overall bill would add about $134 billion to the federal budget deficit, drawing opposition from Republicans and some Democrats.

Senate leaders hope to complete work on the bill before Congress goes on a weeklong break next week. The Obama administration issued a statement Monday supporting the bill.

Lawmakers want to increase the current 8-cent-a-barrel tax on oil to make sure there is enough money available to respond to oil spills. At least 6 million gallons of crude have spewed into the Gulf of Mexico since a drilling rig exploded April 20 off the Louisiana coast.

President Barack Obama and congressional leaders have said they expect BP to foot the bill for the cleanup.

"Taxpayers will not pick up the tab," Senate Majority Leader Harry Reid said Monday.

BP executives told Congress last week they would pay "all legitimate claims" for damages. But the government needs upfront money to respond to spills, as well as money to pay for cleanups when the responsible party is unable to pay, or is unknown. Money spent from the fund can later be recovered from the company responsible for the spill.

The Oil Spill Liability Trust Fund has about $1.5 billion available. Under current law, only $1 billion can be spent from the fund on a single incident. The bill would increase the spending limit to $5 billion.

The U.S. Chamber of Commerce said the tax increase was hastily put together, without adequate study, to help pay for an unrelated bill. The tax increase was unveiled Thursday, without any congressional hearings to study its impact.

"I have seen no analysis on how this would impact energy security, how this would impact domestic production, how this would impact the overall economics in the country," said Christopher Guith, vice president of the chamber's energy institute. "There hasn't been any sort of deliberation on this."

Guith said the tax could be passed on to consumers, depending on the ability of oil companies to raise gas prices in response to a tax increase.

Lawmakers felt the tax increase, to 32 cents a barrel, was reasonable, said Democratic Rep. Sander Levin, chairman of the tax-writing House Ways and Means Committee.

"We just decided to take a look at what we thought would be a reasonable increase," Levin said.

The American Petroleum Institute has not taken a position on the tax increase, though a spokeswoman said Congress should study the ramifications before acting.

"We understand we need to have an insurance policy in order to cover people in the event of a spill," said the spokeswoman, Cathy Landry. "At the same time we need to have a vital oil and gas industry."

The bill does not address a federal law that caps liability at $75 million for economic damages beyond direct cleanup costs. Democratic Senators tried to pass a bill last week that would have increased the cap to $10 billion, but they were blocked by Republicans.

The oil industry says such a high cap would make it difficult, if not impossible, to insure oil rigs.

BP said Monday its costs for responding to the spill had grown to about $760 million.

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