Brawl Looms over Energy Tax Proposal

A brawl over taxes on the oil and gas industry is looming as the White House prepares to release its budget for fiscal 2012 next week, with President Barack Obama proposing to scrap tax breaks for oil companies to pay for new spending on renewable energy.

Both the oil and gas industry and some on Capitol Hill are expecting Obama to propose eliminating the same industry preferences he has before—and perhaps putting other revenue-raising measures on the table.

In his fiscal year 2011 budget, Obama proposed repealing a host of deductions and credits, raising about $39 billion over 10 years. Those included scrapping a domestic manufacturing tax deduction for oil and natural gas companies and repealing expensing of intangible drilling costs.

The oil industry is pledging to fight any efforts to saddle companies with a higher tax burden, and says Obama should instead be letting the industry expand drilling offshore and in Alaska to create jobs.

Senate Democrats, meanwhile, are also urging cutting what they called "unneeded subsidies and tax breaks" to oil companies to help rein in the sprawling U.S. budget deficit. House Republicans recently proposed a budget for the remainder of this fiscal year and are planning to bring it to the floor next week.

"We are concerned that some of the cuts you may propose could undermine future growth just as our economy is beginning to recover," wrote Senate Majority Leader Harry Reid, Sen. Charles Schumer and eight other Democrats to House Speaker John Boehner on Tuesday.

Like Obama's fiscal 2011 budget, the Democrats' legislation would repeal the domestic manufacturing deduction and other items.

Comstock of API underscored that none of the items proposed in Obama's budget for last year passed Congress. But the trade group isn't assuming that that will be the case this year.