NEW YORK ( TheStreet) -- President Obama has been on a mission to take back billions in tax breaks from the biggest five oil companies for the past two years, and this week's attempt went the way of the previous efforts: Nowhere fast. This may be a scenario, though, of losing the battle and winning the war. In the broader campaign for corporate tax reform, Big Oil tax breaks may yet become a major casualty. The Senate once again voted down legislation that would have taken away tax breaks from the five biggest oil companies, a vote along party lines at 51-47, and one that fell short of the 60 votes required. Last year, the Senate fell eight votes short of the 60-vote threshold. President Obama's campaign to tax Big Oil companies has two goals. The senatorial "do the math" missive made clear that seeing the latest Big Oil tax break bill pass wasn't among those goals. The opportunity for the president to speak out about the gargantuan profits of the oil companies at a time when gas is $4 a gallon isn't without its sound-bite merits. It plays well in Peoria even if it falls on deaf ears with Republicans in Congress. That's the November 2012 election-season goal. Yet there's a longer-term game plan, in which an emboldened president could seek to capitalize on his victory to make corporate tax reform a hallmark of a second term. "For the foreseeable future, there is no legislative hope. In the medium-term though, the president is looking to plant the seeds of something else," said Benjamin Salisbury, energy policy analyst at FBR Capital Markets, like if the Big Oil tax break rhetoric of today can set the tone for a larger narrative about corporate tax reform in 2013 and how society thinks about these issues after election. "That matters more than how many votes the measure received on Thursday," Salisbury said. The two parties are closer together on corporate tax reform than the typical D.C gridlock would suggest: Both congressional aisles want to lower the broad corporate tax rate while taking away individual tax expenditures - e.g. the Big Oil tax breaks.
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."
In fact, Big Oil companies, which typically pay high tax rates around the world, could even come out big winners in a broader reform package that lowers the overall rate to 25%. "From your lips to God's ears, if we have a rational corporate tax system, there will be winners," Kleinbard added. The oil and gas industry doesn't disagree, though it continues to object to be singled out as a corporate tax expenditure beneficiary. "This is nothing more than a political outline that seeks to pick winners and losers using the tax code," wrote the American Petroleum Institute in a review of Obama tax proposals. "Despite citing the need to 'reduce distortions that hurt productivity and growth,' this framework rearranges the tax code to deal out more credits and shuffle the tax rates to ultimately benefit certain industries and taxpayers over others." The API added about the impact of a particular oil and gas line item covering "intangible drilling costs" that could be removed, that it would "increase the costs of producing oil and natural gas in our own country, discourage innovation in the energy sector, jeopardize additional valuable advances in oil and gas exploration, and put at risk high paying jobs and America's energy security." API spokesman Carlton Carroll said if the government wants to have a serious conversation about tax reform with all the taxpayers at the table about changing the tax structure, the oil and gas industry is "more than happy to talk." "We just don't like being singled out. We pay at a much higher rate than other industries. We pay on average a 41% rate," Carroll said. "If they lower the tax rate enough, then we wouldn't be opposed to giving up tax expenditures, as long as other industries are giving up similar expenditures." The Big Oil five being singled out -- Exxon Mobil ( XOM), Chevron ( CVX), Royal Dutch Shell ( RDS.A), BP ( BP) and ConocoPhillips ( COP) -- are among the top corporate taxpayers in the U.S. Ken Cohen, Exxon Mobil vice president of government affairs, wrote in a blog post about the tax battle that during the first quarter of 2011, on U.S. earnings of $2.6 billion, Exxon paid tax expenses of $3.1 billion. During the same quarter, Exxon Mobil made about 9 cents for every dollar of sales, which is about average for U.S. industries. The company earned $10.7 billion in worldwide earnings on worldwide sales of $114 billion, roughly half (or less) of what companies in pharmaceuticals or technology make. In the court of public opinion, though, this isn't a winning argument. FBR Capital's Salisbury said the oil companies have been making this unsuccessful argument for years that they are no better off than a lot of sectors. "It's gross revenue that gets people upset. The integrated oil business is hugely profitable on a gross basis even if not as a margin headline," he said. Apple ( AAPL) recently passed Exxon Mobil as the largest market capitalization company in the U.S. However, as Salisbury said, it's futile to try telling the American public that it's Apple, as well as Exxon, that should be singled out on the tax issue. The evolution of the corporate tax debate, inevitably, will depend on what Congress looks like after the election. It's difficult today to imagine where the balance would be set between a Tea Party Congress and a second-term president with fresh "political capital." Or, as Kleinbard said, "Politics can only surprise to the downside." In the continuing rhetoric over Big Oil tax breaks and high gasoline prices during an election year, though, it's easy to forget that defeat could be victory by another name for the oil majors, and that wouldn't surprise President Obama. In fact, he might be fine with that outcome. -- Written by Eric Rosenbaum from New York. >To contact the writer of this article, click here: Eric Rosenbaum. >To follow the writer on Twitter, go to Eric Rosenbaum.