Fiscal Irresponsibility: Corporate Tax Bill A Haven for Energy Industry Giveaways

Oct. 6, 2004

Fiscal Irresponsibility: Corporate Tax Bill A Haven for Energy Industry Giveaways

Statement by Joan Claybrook, President of Public Citizen

The energy industry has successfully pressured Congress for a heap of pork on a corporate tax bill (H.R. 4520) that was initially designed for the limited purpose of changing U.S. law declared illegal by the World Trade Organization.  Now in conference committee and possibly due for a vote as early as today, billions of dollars in corporate tax breaks – some of which are taken from the failed energy bill – remain buried in the massive 600-plus page tax bill. Few members will read it before they must vote on it.

One of the biggest corporate welfare items in the bill is a provision that will allow America’s largest energy companies – which are among the most profitable in the U.S.   economy   – to reclassify energy production as a manufactured good in order to qualify for potentially tens of billions of dollars in new tax deductions. The manufacturing tax deduction has previously been available only to traditional manufacturing industries. The size of this ballooning tax deduction increases over time to a maximum of   9 percent of a company’s production income after 2009. The total estimated cost of this tax deduction is $76.5 billion from 2005 to 2014. While this estimate includes the deductions for many different industries, energy companies would likely be the largest recipient.

Among the other most egregious handouts in the bill:

  • A one-sentence provision extending to the end of 2007 an existing $100,000 tax deduction for small business owners who purchase SUVs or other light trucks over 6,000 pounds. This could cost $1.4 billion for every 100,000 taxpayers who take advantage of the loophole. The loophole otherwise would expire by 2006. An amendment pending in conference may reduce the tax deduction to $25,000.
  • A measure providing tax breaks to oil refineries to improve clean air standards.  While this appears to be reasonable, the problem is that the bill defines “small refiners” as those with refining capacity below 205,000 barrels per day – a high threshold that will include some large oil companies that have enjoyed huge profits, such as Dow Chemical and Sinclair Oil-Little America Refining.
  • A tax    break to help boost Regional Transmission Organizations (RTO). The Federal Energy Regulatory Commission (FERC) has stumbled in its attempts to force power utilities to join its anti-consumer RTO electricity market system. A new tax break appears to serve as an end-run around this problem: Utilities will be enticed to sell their transmission assets into these systems with $5 billion in tax breaks in the first two years.   RTOs are Enron’s dream come true; they are huge, multi-state electricity systems that prioritize the needs of energy traders like Goldman Sachs and other power marketers at the expense of consumers.
  • The suspension for another two years of the import duties on nuclear steam generators and reactor vessel heads – components that are being replaced in power plants around the country –a move that would cost taxpayers $9 million. Replacing these components means that the reactors will continue to be used – and generate dangerous waste – long past their intended lifetimes.
  • A tax credit to energy industries for generating electricity from alternative fuel sources, although only one of the identified alternative sources, wind, is a clean, renewable energy source. The rest of the expensive credit, totaling $2.278 billion from 2005 to 2014, is doled out to companies that pollute, including manufacturers of “refined” coal, a fuel produced from dirty coal. 
  • A $231 million subsidy to five real estate developments, including the DestiNY USA project, which aims to build the world’s largest shopping mall near Syracuse, N.Y. DestiNY developer Robert Congel is a “Ranger,” meaning he has raised at least $200,000 for the Bush campaign, who hosted a fundraiser with Vice President Dick Cheney in November. Congel and his wife also have donated at least $15,000 to the National Republican Congressional Committee.
  • The rescission of a tariff on ceiling fans imported from China, a gift to giant retailer Home Depot, which stands to gain up to $44 million from the measure over the next three years. Home Depot CEO Robert Nardelli is no stranger to the president: He has made no fewer than three trips to the White House during the Bush administration, appeared alongside Bush last December when the president made a speech at a Home Depot store in Maryland, and hosted a $2.25 million fundraiser featuring Bush for the Republican National Committee (RNC) at his Atlanta home in May. Both Nardelli and his top lobbyist, Kent Knutson, have been named “Super Rangers” for raising at least $300,000 for the Republican National Committee. Knutson has his own connections to the White House via his wife, Karen, a former top Cheney aide who served as deputy director of the vice president’s secret energy task force.

In a final showdown of the 108th Congress, the energy industry is poised to push through billions of dollars in corporate welfare paid out of a depleted U.S. Treasury, which already is hosting a $422 billion deficit. Since 2001, electric power, natural gas and oil corporations have contributed $73 million to federal candidates, with three-quarters of that total going to Republicans.  We urge members of Congress to see this bill for what it is: a giant gift to undeserving industries and vote against this legislation.

For more information about the energy provisions in the corporate tax bill, click here.

For information about the SUV tax deduction, click here.

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