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Obama Loses Another Tax Battle to Big Oil, but the War Isn't Over

Stocks in this article: XOM CVX RDS.A BP COP

President Obama recently proposed lowering the corporate tax rate to 28%. Congressman Dave Camp (R-MI), the chairman of the House Ways and Means Committee, has proposed a 25% corporate tax rate.

"That's not a very wide bid/ask spread," noted Edward Kleinbard, University of Southern California law professor and former chief of staff of the U.S. Congress's Joint Committee on Taxation.

Donald Marron, the director of the Urban-Brookings Tax Policy Center and a former Congressional Budget Office leader and White House economic adviser for the Bush and Obama administrations, said both the left and the right want to reduce the overall rate and reduce tax expenditures to pay for it. "The day that happens is unclear, but oil tax expenditures will be one of the pay-fors," Marron said.

Even with the significant lobbying muscle of the oil and gas industry, both sides of the aisle want to make the big deal work, and ultimately, that will come down to which tax expenditures go.

"People used to think the ethanol tax credit would never expire. Every tax expenditure has a constituency and they will challenge it but if they go through his process they have to make some people unhappy," Marron said.

It's not even clear that broader corporate tax reform lowering the overall rate while repealing the Big Oil tax breaks would be a "defeat" for the oil companies.

" If you lowered the corporate tax rate and took away some or all of these oil and gas tax credits for the oil majors, I don't know if I would even call it a defeat," Salisbury said.

The first objective was to just make a political statement that's obvious and about energy policy and the contribution that Big Oil should be making to the nation -- Obama's all-of-the-above energy approach. The second objective is consistent with the points made in the Senate and by members of both parties that these proposals have the effect of conditioning us to what Kleinbard called "the end state."

"Everyone who works in policy understands we need to reach an end state of corporate tax policy which includes a lower tax rate and broader tax base with fewer incentives, subsidies and other distortions. The Big Oil tax breaks are just a perfect example, but are not qualitatively different from other tax expenditures," Kleinbard added.

"Senior Senate leaders from both parties have acknowledged the need to be brave and have courage on corporate tax reform," Kleinbard said. "The only way is to inflict pain on friends is to inflict pain on everybody. But not everyone will be held neutral by definition."

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