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The Furor Ahead over Fat Tax Breaks for Energy


When Senate Republicans unveiled a long-awaited energy bill on Feb. 26, its call to open the Arctic National Wildlife Refuge to oil drilling got most of the attention. But the ANWR proposal is a sideshow. The main event of the energy-policy debate will be the lucrative tax incentives aimed at the oil-and-gas, nuclear power, and mining industries.

President Bush strongly favors ANWR drilling, but the pristine coastal plain isn't likely to see an oil derrick anytime soon. Why? Even though the energy bill's main sponsor is GOP Senator Frank H. Murkowski of Alaska, and it's backed by leading Democrats such as Senator John B. Breaux of Louisiana, the controversial ANWR plan is steadily losing support among GOP senators crucial to its passage. And Democrats and their environmental allies are gearing up to oppose the bill as "corporate welfare" at a time when rising energy prices are causing financial hardship for millions. Some Democrats will even charge that breaks for energy are a backdoor payoff to Bush donors locked out of the President's tax-cut bill.

"GOOD START." The proposed tax cuts certainly are generous. The bill would exempt oil producers from paying federal royalties on deep-water wells if crude prices drop below an average of $28 a barrel for 12 months. The measure would also hike the so-called depletion allowance, or the percentage of income that producers can shelter from corporate taxes as wells age. And it offers an array of tax breaks to encourage the nuclear and coal industries.

The cost? At least $23.6 billion in tax breaks, subsidies, and new spending over 10 years, according to Taxpayers for Common Sense, a nonpartisan watchdog group in Washington. "This isn't an energy bill. It's an energy-industry bill," gripes Melinda Pierce, a Sierra Club lobbyist.

The bill's sponsors don't have their own cost estimate yet, but they insist that the most generous breaks are for small producers with average production of fewer than 25 barrels a day. Besides, supporters argue, tax incentives are needed to address the heart of the problem: too much demand, not enough supply. "Unless the public is willing to change what they're doing considerably, we have to increase supply," says Jack N. Gerard, CEO of the National Mining Assn.

But Murkowski knows he has a fight on his hands. The White House calls the bill "a good start," but industry lobbyists say the Bushies are waiting to see which provisions have enough support for inclusion in their own energy plan this spring. Already, GOP senators have stripped out several breaks for big producers, such as deductions for "intangible" drilling costs like site preparation. "Big Oil is doing quite well" without new incentives, says Murkowski.

Democrats from the Northeast and other regions hit by this winter's cold snap couldn't agree more. Energy producers, they say, don't need tax relief. A study last fall by the Institute on Taxation & Economic Policy found that in 1996-98, the petroleum industry paid less in taxes than any other group. Opponents also will focus on what they claim is a lack of attention to conservation. "We can't even talk about a comprehensive energy policy without concrete policies to reduce oil demand," says Senator Jeff Bingaman (D-N.M.). And they'll point to polls, such as one on Feb. 23 by Gallup, in which 56% say that spiraling energy costs are causing them financial problems. As utility bills mount, so will pressure on Capitol Hill. For the first time in over a decade, Washington is about to have a vigorous energy debate, and it's shaping up as an old-fashioned populist tug-of-war between consumers and powerful corporate interests. President Bush is expected to name Thomas A. Scully, CEO of the Federation of American Hospitals, to head the Health Care Financing Administration, which runs Medicare and Medicaid. Scully, 43, was a budget aide under the elder President Bush. Last year, he helped persuade Congress to restore hospital payments slashed by the '97 Balanced Budget Act. Scully will have his hands full at HCFA, which is under assault as an overly aggressive regulator. HCFA may have a new leader, but the Bushies are having a tougher time finding a Food & Drug Administration commissioner. The White House aims to keep conservatives happy by not naming a supporter of abortion drug RU-486. Health Secretary Tommy Thompson wants a woman, in part to deflect criticism that such a pick would be antifemale. So far no credible names have surfaced, say insiders, who want candidates such as ex-acting FDA chief Dr. Michael A. Friedman considered. Senator Don Nickles (R-Okla.) is moving to undo the Clinton Administration's ergonomics regulations. Business and GOP critics say the rules would cost billions and cripple companies. Nickles plans to use a 1996 law allowing Congress to block regs with a simple majority vote; he is expected to have the votes he needs in the Senate. Labor groups and others are gearing up to try to save the regs in the House.


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