Congressional Research Service confirms closing tax loopholes won’t affect gasoline prices

In the he-said, she-said world of politics and reporting inside the DC Beltway, a little bit of research goes a long way. As the heated debate over gasoline prices””and just what exactly causes them to rise””rages on, U.S. Senator Harry Reid (D-NV) has had the presence of mind to do some investigative digging. CAP’s Valeri Vasquez has the story.

In the face of conservative claims that cutting subsidies for top oil companies will push prices at the pump higher, Reid tapped the Congressional Research Service, or CRS, with a request for more information on “the extent to which proposed tax changes on the oil industry are likely to affect domestic gasoline prices.” Their answer came back on May 11th, short and to the point:

there is little reason to believe that the price of oil, or gasoline, consumers face will increase.


[Since] prices are well in excess of costs”¦a small increase in taxes would be less likely to reduce oil output, and hence increase petroleum product (gasoline) prices.

The modest four-page memorandum was delivered just one day prior to the Senate Finance Committee’s May 12th hearing on “Oil and Gas Tax Incentives and Rising Energy Prices.


Subsidy by subsidy, the memo furnishes pithy, fact-based support for the Senate’s proposed tax changes to the top five most lucrative oil companies operating in the U.S: BP, Chevron, ConocoPhillips, Exxon Mobil, and Shell.

At Reid’s request, CRS researchers zeroed in on several specific tax proposals, including the Section 199 deduction for domestic production, the repeal of the current expensing of intangible drilling costs provision, revision of the dual capacity taxpayer rules, percentage depletion, and the tertiary injectants deduction.

On the Section 199 deduction, CRS explains that

In the short-run it is unlikely that [greater dependence on foreign sourced oil] would occur”¦With current oil prices at, or near, $100 per barrel in the United States, it is unlikely that firms will slow production, or close wells.

And concerning the removal of a provision that permits the Big Five to expense their intangible drilling costs? Repealing that tax break

will [likewise] have no effect on current U.S. oil production, and hence no effect on current gasoline prices.

Mr. James Mulva, Chairman and Chief Executive Officer of ConocoPhillips, would do well to note the benefits of revising dual capacity rules. Contrary to a press release calling the Senate tax proposals “un-American”, adjusting these rules

could lead the firms to enhance domestic capital spending, leading to increased domestic production and reduced oil dependency.

The CRS finding renders this tax proposal practically patriotic. Their bombshell memo also moots any potential uproar over cutting the percentage depletion subsidy, since

Percentage depletion remains generally in effect only for the independent oil companies.

[Therefore] percentage depletion allowance should no longer be a factor in investment, output and pricing decisions by the five major oil companies.

Finally, on the tertiary injectants deduction, CRS researchers explained that given the exorbitant prices in today’s oil market, repealing this tax break would likely have only a “small” effect on domestic gasoline prices.


“Small” was used no fewer than six times in the brief CRS memo supplied to Reid’s office. And while the same adjective cannot be applied to Big Oil’s massive profits this quarter, it can certainly be used to describe the total expected tax revenues from these top five companies: according to the CRS, those expected tax revenues are only 5 percent of their total earnings. In other words, removing Big Oil handouts from the tax code would cut these firms’ profits by only a nickel for every dollar of profit. Now that’s small.

By Valeri Vasquez, CAP Energy Team Special Assistant.