TAX NEWS - June 2010

Tax Panels Target Oil Companies

House and Senate Democratic tax writers have agreed to quadruple the current 8-cent-per-barrel tax on oil companies that funds the oil spill liability trust fund as part of a larger bicameral tax extenders deal the House and possibly the Senate will take up next week.

According to an analysis of the plan released late Thursday by the Joint Committee on Taxation, Democratic leaders on the Senate Finance and House Ways and Means panels would increase the per-barrel tax to 32 cents through 2020. This would raise $10.9 billion, according to the analysis. Finance Chairman Max Baucus, D-Mont., and Ways and Means Chairman Sander Levin, D-Mich., are also proposing to remove the $1 billion limit per spill that can be taken out of the trust fund.

The increase in the per-barrel tax is intended to shore up a trust fund estimated to have roughly $1.5 billion. This is widely believed to be far below the eventual cost of the ongoing Gulf of Mexico spill.

The Senate Energy and Natural Resources Committee Tuesday is holding a hearing to examine the current $75 million liability cap oil companies pay for economic damages related to a spill. That limit has prompted increasingly partisan bickering as some Senate Democrats -- with the backing of Majority Leader Harry Reid, D-Nev. -- have attempted to have the Senate unanimously agree to raise that cap to $10 billion.

Republicans have objected to those attempts. Republicans like Senate Energy and Natural Resources ranking member Lisa Murkowski, R-Alaska -- as well as fellow oil-state Sen. Mary Landrieu, D-La. -- have argued that setting the liability cap that high would adversely affect smaller companies who would be unable to finance offshore drilling projects.

BP officials have indicated they will pay all "legitimate" liability claims related to the gulf spill regardless of any liability limits.