Democratic Senators introduced a bill on Tuesday that would repeal tax breaks enjoyed by the five biggest oil companies, freeing up $21 billion over a decade to ease the budget deficit.
Reducing tax breaks for oil and natural gas companies is also a goal of President Barack Obama, who has been keen to tack the blame for soaring gasoline prices on oil companies as he gears up for the 2012 election.
Senators Robert Menendez, Sherrod Brown and Claire McCaskill, who face tight races in next year's elections, introduced the bill as U.S. gasoline prices hovered just under $4 a gallon, about 14 cents off a record hit in 2008.
Senate Majority Leader Harry Reid said he hoped the measure would come to a vote in the full chamber next week.
The bill will likely draw opposition among Republicans, who have said such measures will send gasoline prices even higher.
But the bill's sponsors said it would save taxpayers about $2 billion a year, noting that oil companies have made $1 trillion in profits over the last decade.
If we can't end subsidies to the five biggest, most profitable corporations in the history of the planet ... then I don't think anybody should take us seriously about deficit reduction, McCaskill told reporters.
The federal deficit is forecast to reach $1.4 trillion this year and stay in the trillion-dollar range for several more years as the economy recovers slowly from a deep recession.
Reid said ending tax breaks is a better way of easing the deficit than cutting government programs such as Medicare for the elderly. Putting seniors ahead of oil companies should be a no-brainer, Reid told reporters.
Exxon Mobil Corp and Chevron Corp the biggest of the Big 5, have profited as oil trades at more than $100 a barrel. Exxon posted a profit for the first quarter of $10.65 billion and Chevron posted a $6.2 billion profit. BP Plc reported $5.5 billion in profits despite setbacks from last year's massive oil spill in the Gulf of Mexico.
The Menendez bill, which calls for all savings from the tax break repeal to go toward reducing the deficit, is a departure from a plan aired by Senator Max Baucus, who would have used some of the savings to promote renewable energy.
It would modify foreign tax credit rules that companies use to lower their U.S. tax payments. It would also limit deductions of income attributable to oil and natural gas production, and eliminate domestic manufacturing tax deductions for the companies.
Executives from the five biggest oil companies agreed to come to Capitol Hill to testify on Thursday at a Senate Finance Committee hearing on ending oil industry tax breaks.
The executives testifying are Exxon Mobil Chairman Rex Tillerson, Shell Oil Co. U.S. President Marvin Odum, BP America Chairman Lamar McKay, Chevron Chairman John Watson and ConocoPhillips Chairman James Mulva.
Republicans, who control the House of Representatives, have opposed curbing the tax breaks, saying this would increase costs for oil companies that would be passed on to consumers in the form of higher gasoline prices.
The bill also will have to win over several Democrats in the Senate, such as Energy Committee chair Jeff Bingaman, who recently voted down a similar bill. Even if the bill passed in the Senate, it would likely be blocked in the House where many lawmakers prefer shrinking the federal deficit by cutting government programs.
The oil industry said the bill unfairly targets the five biggest companies leaving other big industries alone.
Is it a noble cause to penalize one individual segment of an industry? said Charles Drevna, president of the National Petrochemical & Refiners Association. If you are going to tackle deficit spending the entire tax code needs to be addressed.
Analysts said the bill has slim chances of passing but signals a wider discontent from both parties with big oil company profits that could grow as high gas prices persist.
The bill in its own right isn't necessarily a viable proposal, but it's a real signal of a real prospect -- the five largest companies are in the crosshairs, of politicians hearing from consumers angry over prices, said Kevin Book, an analyst at ClearView Energy Partners.
(Reporting by Timothy Gardner and Deborah Charles, editing by David Lawder and Lisa Shumaker)