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WASHINGTON -- In a telling sign of the political impact of soaring energy prices, the Republican-controlled Senate Finance Committee voted on Tuesday to impose a $5 billion tax next year on the nation's biggest oil companies, reported The New York Times.
The measure amounts to a one-year windfall profits tax, a concept that most Republicans had until recently denounced 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, according to the report.
Conservative Senate Republicans who support the oil industry bitterly protested the measure, noting that Congress had just approved billions in new tax breaks to encourage oil and gas exploration. But every Republican voted for the overall package, which passed the committee 14 to 8 and which the full Senate is expected to take up on Wednesday, according to The Times .
Five of the largest oil companies recently reported that their combined profits for the third quarter surged to $33 billion as a result of skyrocketing oil prices. Last week, top oil executives testified at a Congressional hearing, defending their record results in the face of mounting criticism.
Lawmakers have been prodding the oil companies to give up some of their profits and have floated the idea of a windfall profit tax. But party leaders and the White House have firmly opposed such a move. Many Senate Republicans are counting on their counterparts in the House to reverse the tax on oil companies and add back an extension of tax cuts, reported The Times .
Senate Republicans refused to call their provision a "windfall profits tax," a tax that was imposed after oil companies enjoyed a similar spike in profits in the early 1970s. Critics of the windfall profits tax contended that it merely discouraged production and contributed to severe gasoline shortages and long waiting lines, according to the report.
But in practice, the provision, drafted by Sen. Charles E. Grassley (Rep.-Iowa), chairman of the Senate Finance Committee, would have much the same effect as the old tax.
Technically, 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 oil inventories next year, reported The Times .
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 increase their costs and reduce their taxable income by hundreds of millions of dollars each, according to the report.
Conservative Republicans on the Senate tax-writing committee complained bitterly about the measure.
"We can't just penalize these companies with an accounting gimmick, right at the same time that we're trying to give them incentives for investing in new facilities," said Sen. James Bunning (Rep.-Kentucky), in the report.
Sen. Craig Thomas (Rep.- Wyoming) charged that his Republican colleagues were "undermining the energy policy that we have been working on for years" and would discourage exploration and production. "I suppose," he said in the The Times report, "it's because you found out that energy companies are making some money."
Grassley, who drafted the provision, said little about the issue himself -- a recognition of its unpopularity in many quarters of his own party, according to The Times . He also agreed to consider refinements to the bill before the full Senate took it up on Wednesday.
Democratic lawmakers were elated, though most Democrats on the committee still voted against the overall package on the ground that it would increase the budget deficit. Senators Ron Wyden of Oregon and Charles E. Schumer of New York had proposed an amendment that would eliminate billions of dollars in tax breaks for energy companies that Congress passed recently. But they withdrew their amendment after receiving assurances from Grassley that he would look at striking $1 billion worth of tax breaks aimed at oil exploration, reported The Times .