Incoming Senate Finance Committee Chairman Ron Wyden, an Oregon Democrat, and outgoing House Ways and Means Chairman Dave Camp, a Michigan Republican, continue to express interest in comprehensive tax reform. As precious legislative days fly by in 2014, prospects for action remain uncertain. There is, however, one simple tax reform that Congress should pass right away that would make the federal tax code fairer and reduce the deficit with almost no impact on the economy: end special tax breaks for the five biggest oil companies.
The oil industry has prospered over the past decade, thanks to high oil and gasoline prices. The five largest companies — BP, Chevron, ConocoPhillips, ExxonMobil, and Shell — earned more than $1 trillion during this time. In the first nine months of 2013, these five companies realized a combined $71 billion in profits. Certainly, these companies can prosper without $2.4 billion in annual special tax breaks.
The Congressional Joint Committee on Taxation estimated that three tax preferences provide $24 billion per decade in annual benefits to these five companies. The “limitation on Section 199 deduction,” designed to encourage domestic manufacturing to remain on shore, costs the Treasury $14.4 billion per decade for these five companies. The foreign tax credit deduction saves the big three domestic oil companies $7.5 billion per decade. The “intangible drilling costs” deduction saved the five companies another $2 billion.