(photo: L.C.Nøttaasen)

That bill from Senate Democrats to cancel oil subsidies is scheduled for this week.

Linking two of the politically volatile issues of the moment, Senate Democrats say they will move forward this week with a plan that would eliminate tax breaks for big oil companies and divert the savings to offset the deficit.

With high gas prices and rising federal deficits in the political spotlight, senior Democrats believe that tying the two together will put pressure on Senate Republicans to support the measure or face a difficult time explaining their opposition to voters whose family budgets are being strained by fuel prices.

The subtext here is that this is a political play. The best use of oil company tax breaks is not deficit reduction. At a time when dwindling global oil supplies will force us to completely restructure our energy and transportation infrastructure, that money could be put to use as an investment in that direction. In fact, President Obama’s budget plan would actually do that. But deficit reduction is perceived by leading Democrats as the best political use of those funds. After all, Republicans have been screaming since the moment they got the big boy’s seat in the House about the deficit and the need to reduce spending. So, Democrats say, here’s a big target to reduce spending in the tax code and stop handing money to the most profitable companies in the world. To increase the political impact, the bill only repeals subsidies on the five largest oil companies – BP, Exxon Mobil, Shell, Chevron and Conoco Phillips – based on applying the repeal to levels of revenue. This reduces the impact to $21 billion over 10 years, down from $40 billion.

The Senate Finance Committee will bring in oil company executives this week to defend the billions in subsidies they get from the US taxpayer. That won’t be pretty.

There’s another way to go after this, and that’s legislation that would strictly limit speculation in the oil markets, responsible for a good portion of the run-up in prices. That attacks the problem from a different angle and adds Wall Street speculators to the list of bad guys along with the oil companies. But the leadership would rather go with the subsidy issue.

Since the Senate doesn’t really do anything, expect this measure to take up days of floor time without a resolution. That appears to be the whole point.

That bill from Senate Democrats to cancel oil subsidies is scheduled for this week.

Linking two of the politically volatile issues of the moment, Senate Democrats say they will move forward this week with a plan that would eliminate tax breaks for big oil companies and divert the savings to offset the deficit.

With high gas prices and rising federal deficits in the political spotlight, senior Democrats believe that tying the two together will put pressure on Senate Republicans to support the measure or face a difficult time explaining their opposition to voters whose family budgets are being strained by fuel prices.

The subtext here is that this is a political play. The best use of oil company tax breaks is not deficit reduction. At a time when dwindling global oil supplies will force us to completely restructure our energy and transportation infrastructure, that money could be put to use as an investment in that direction. In fact, President Obama’s budget plan would actually do that. But deficit reduction is perceived by leading Democrats as the best political use of those funds. After all, Republicans have been screaming since the moment they got the big boy’s seat in the House about the deficit and the need to reduce spending. So, Democrats say, here’s a big target to reduce spending in the tax code and stop handing money to the most profitable companies in the world. To increase the political impact, the bill only repeals subsidies on the five largest oil companies – BP, Exxon Mobil, Shell, Chevron and Conoco Phillips – based on applying the repeal to levels of revenue. This reduces the impact to $21 billion over 10 years, down from $40 billion.

The Senate Finance Committee will bring in oil company executives this week to defend the billions in subsidies they get from the US taxpayer. That won’t be pretty.

There’s another way to go after this, and that’s legislation that would strictly limit speculation in the oil markets, responsible for a good portion of the run-up in prices. That attacks the problem from a different angle and adds Wall Street speculators to the list of bad guys along with the oil companies. But the leadership would rather go with the subsidy issue.

Since the Senate doesn’t really do anything, expect this measure to take up days of floor time without a resolution. That appears to be the whole point.

David Dayen

David Dayen