Obama May Levy $15 Billion Tax on Oil Company Profit

Bloomberg: Obama May Levy $15 Billion Tax on Oil Company Profit (Update1)

By Daniel Whitten

May 1 (Bloomberg) — Democratic presidential candidate Barack Obama’s proposal for a windfall profits tax on oil companies could cost $15 billion a year at last year’s profit levels, a campaign adviser said.

The plan would target profit from the biggest oil companies by taxing each barrel of oil costing more than $80, according to a fact sheet on the proposal. The tax would help pay for a $1,000 tax cut for working families, an expansion of the earned- income tax credit and assistance for people who can’t afford their energy bills.

“The profits right now are so remarkable that one could trim them 10 percent or so, which would turn out to be somewhere in the $15 billion range,” said Jason Grumet, an adviser to the Obama campaign.

Obama’s plan may be three times larger than the $50 billion, 10-year plan contemplated by his Democratic rival, New York Senator Hillary Clinton. Republican candidate John McCain, an Arizona senator, has no plan to raise oil and gas industry taxes, said his economic adviser, Douglas Holtz-Eakin.

Oil companies would still have ample reason to “continue to pursue production, while at the same time providing relief to consumers,” Grumet said.

A flurry of energy proposals from presidential candidates and lawmakers has come after crude oil futures prices reached $119.93 a barrel on April 28. Retail gasoline prices hit a record $3.603 a gallon this week, according to the U.S. Energy Department.

Obama’s Proposal

Among the options Illinois Senator Obama is mulling is imposing a 20 percent tax on the cost of a barrel of oil above $80, said Grumet, who spoke at a conference in Washington today.

“The industry has profited greatly — over $150 billion in 2007 — due to global instability fueled by conflict in Iraq, failing domestic fiscal policies that have weakened the U.S. dollar and skyrocketing global demand resulting from a lack of investment in alternatives,” said the Obama fact sheet.

Energy companies argue that new taxes will discourage production at a time when supply is needed most.

Clinton would impose a $20 billion windfall profits tax on oil companies over the next decade and repeal $30 billion in tax breaks over 10 years to pay into a so-called strategic energy fund, said Brian Deese, Clinton’s economic policy director.

Gas-Tax Holiday

Clinton has proposed a gas-tax holiday for the summer paid for by about $9 billion in windfall profits taxes on oil companies. She would repeal an 18.4 cent per-gallon tax on gasoline and a 24.4 cent per-gallon tax on diesel fuel. Obama opposes the idea, saying it will provide minimal relief to consumers.

Oil companies got about $12 billion in tax breaks last year, Grumet said, and the windfall tax would aim to roll back all of those subsidies.

The top five oil companies, San Ramon, California-based Chevron Corp.; Houston-based ConocoPhillips; Irving, Texas-based Exxon Mobil Corp.; BP Plc in London; and the Hague-based Royal Dutch Shell Plc. reported $123 billion in profits for last year.

Exxon Mobil said first-quarter net income rose to $10.9 billion, or $2.03 a share, from $9.28 billion, or $1.62, a year earlier. The profits report fell short of analyst estimates as production dropped and profit margins from refining narrowed.

To contact the reporter on this story: Daniel Whitten in Washington at [email protected]

Last Updated: May 1, 2008 20:05 EDT

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