Big Oil Extraordinary Profits to be Taxed

The Republican-controlled U.S. Senate Finance Committee has voted to impose a $5 billion tax next year on American oil companies. The measure amounts to a one-year windfall-profits tax, a concept that most Republicans denounced until recently as a discredited idea from the 1970s. It was added to a larger bill that would cut taxes by about $61 billion over the next five years. Conservative Senate Republicans who support the oil industry bitterly protested the measure, noting that the Congress had just approved billions in new tax breaks to encourage oil and gas exploration. But the vote for the overall package was approved by the committee 14 to 8. Five of the largest U.S. oil companies recently reported combined profits for the third quarter surging to $33 billion. Lawmakers have been pushing the oil companies to voluntarily give up some of their profits in the face of public outrage over the viewed obscene profits. Many Senators have floated the idea of a windfall-profit tax. However, party leaders and the White House have firmly opposed such a move. Many Senate Republicans are counting on House Republicans to reject the new tax and add back an extension of tax cuts. The provision would require major "integrated" oil companies, those that do everything from drilling to running gasoline stations, to revise the way they account for the oil inventories next year. Under current law, if an oil company increases its inventories, it can book that increase as a cost against profits and value the new oil at current market prices. If oil prices shoot up, as they did this year, this approach allows big oil companies to claim increased costs and reduce their taxable income by hundreds of millions of dollars.