Reid: Hey, let's just tax the hell out of certain oil companies.UPDATE: Bill Unconstitutional?

There’s a bevy of not-so-goodness to be found in a bill which Harry Reid plans to float as a trial balloon in the Senate this week. S940 is also known as the Close Big Oil Tax Loopholes Act. Other names previously considered for the bill included, but were not limited to:

  • “Winning Some Easy Votes by Screwing American Energy Producers and Driving Up Costs to Consumers Act of 2011.”
  • “Making It More Expensive to Produce the Energy We Told You We Were Tired of Importing from Overseas Act of 2011.”
  • “Taxing the Living Hell Out of Five of the Few Companies Who Could Actually Create More Jobs This Year if We Woke Up and Gave Them Permits Act of 2011.”

The number of things wrong in this hastily assembled piece of legislation is almost too great to cover in one article. There is also reason to believe that it’s just more political theater on the part of Harry Reid, since one key Democrat already confessed that it probably doesn’t have the legs to make it past the Senate, say nothing of the House. But just in case it does, here are a few of the lowlights you need to be aware of. All of these provisions are aimed directly or through legal definitions at five companies: Exxon, Shell, BP, ConocoPhillips and Chevron.

First, the bill contains language regarding the purpose of jacking up taxes on certain energy producers to ostensibly lower the deficit. (And hey, who doesn’t want to do that, right?) Hot Air was contacted by the American Petroleum Institute on this score. Don’t buy it.

Summary: Sec. 301 of “The Close Big Oil Tax Loopholes Act” (S. 940) claims that any revenues generated by the bill’s tax increases on certain oil and gas companies would be put towards deficit reduction. Sec. 301 does not mandate deficit reduction. Any net revenue increase in this bill would enhance a bank of savings on OMB’s S-PAYGO scorecard, which future legislation could use to “pay for” unoffset new spending.

Explanation: S. 940 would impose higher taxes on certain oil and gas companies. Although an official JCT score is not yet public, the bill would unambiguously generate additional revenue. Sponsors of the legislation have included language stating that any net savings produced by the legislation would go towards deficit reduction:

And here are a few of the other real winners to be found in the bill currently under consideration.


As we covered in our previous article on so-called “subsidies” for Big Oil, virtually every US company engaged in “manufacturing, producing, growing or extracting” anything in this country is eligible for a 9% tax deduction for those productive efforts. Until now, the major integrated oil producers were already getting a reduced reduction of 6%, a restriction not imposed on any other productive, job creating activity. This section will drop that number to zero. No deduction for those five companies.


Sections of the Energy Policy Act of 2005 allowed the government to waive certain costs against royalties for energy producers engaged in the expensive and frequently hazardous for workers environments of deep water leases to encourage expanded domestic production. This section will eliminate that option and make sure every attempt to find more resources gets slammed with the maximum bill due to Uncle Sam.


(a) In General- Section 613A of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

`(f) Application With Respect to Major Integrated Oil Companies- In the case of any taxable year in which the taxpayer is a major integrated oil company (as defined in section 167(h)(5)(B)), the allowance for percentage depletion shall be zero.’.

I include this section primarily for laugh factor value. While preparing this article, I put in a call to two tax attorneys for the American Petroleum Institute who were really scratching their heads over this one. The percentage depletion allowance is a cost recovery method that allows taxpayers to recover their lease investment in a mineral interest through a percentage of gross income from a well. It’s available to private developers, “wildcatters” and the like. Taking it away from the large integrated companies in question doesn’t seem like it’s going to put much more money on the nation’s coffers as those five companies haven’t been eligible for this benefit for more than 20 years.

This just goes to show how well thought out this bill was when it got rushed to the floor. Simply amazing. But here’s a bonus for you. Guess what major American company is getting pretty much all of the same tax benefits which Harry Reid now wishes to strip from energy producers but will not have their “subsidies” taken away? The New York Times.

UPDATE: My prediction that this bill was ill prepared and nothing more than political theater seems to be confirmed by, of all sources, TPM. The entire thing probably couldn’t be passed even if they had the votes.

Republicans may have a point that Democrats are playing politics with oil subsidies. To understand why, look no further than the fact that the bill Senate Majority Leader Harry Reid will bring to the floor for a vote Tuesday evening doesn’t pass basic constitutional muster.

“The question is if the bill passes the Senate, it will run into a blue-slip problem,” Reid said at his weekly Capitol press conference. Blue slipping is the process the House uses to reject Senate bills that impact tax and spending.

Reid joked, “That’s the least of my worries.” …

But even if by some miracle it passes, it would have to be shelved. In their zeal to put Republicans on the spot, Democrats neglected one key technicality: eliminating tax loopholes raises revenues, and any legislation that raises revenues must, according to the Constitution, originate in the House of Representatives.

Really? That’s the least of your worries? Can somebody in the sound booth give me a quick check on the feed here? Did the Senate Majority Leader really just say that whether or not his legislation is even constitutional is the “least of his worries?”

Your tax dollars at work, yet again.