Politics & Policy

Oil Taxes and Fiscal Honesty

The Vitter amendment would prevent a form of budget trickery.

Every so often, members of Congress are given the chance to cast a vote in favor of fiscal honesty. Such an opportunity presented itself last month, when Sen. Mike Crapo (R., Idaho) introduced a financial-reform amendment requiring housing giants Fannie Mae and Freddie Mac to be counted as part of the federal budget and reestablishing limits (at $200 billion apiece) on their access to Treasury Department credit.

Many Americans might be surprised to learn that the mortgage twins aren’t already on budget, considering that they have been in federal conservatorship since 2008. Indeed, the longtime “government-sponsored enterprises” (GSEs) are now explicitly controlled by Washington. In the first quarter of 2010, Fannie and Freddie posted losses of $13.1 billion and $8 billion, respectively. As American Enterprise Institute scholar Peter Wallison has noted, they will prove far more costly to taxpayers than the much-maligned Troubled Asset Relief Program. Yet their debt obligations — which total several trillion dollars — remain off the federal balance sheet.

The Crapo measure sought to change that, and it won the support of Democrats Evan Bayh (Ind.), Michael Bennet (Colo.), Russ Feingold (Wis.), Herb Kohl (Wis.), Ben Nelson (Neb.), Mark Pryor (Ark.), and Mark Udall (Colo.), along with that of every single Senate Republican save Alaska’s Lisa Murkowski (who did not vote). Unfortunately, 46 Democratic caucus members opposed it, and the amendment came nowhere close to reaching the 60-vote threshold it needed for passage. The next time you hear Max Baucus (Mont.), Kent Conrad (N.D.), Mary Landrieu (La.), Joe Lieberman (Conn.), or Mark Warner (Va.) described as a “deficit hawk,” keep in mind that each one rejected transparent accounting for the GSEs.

Now, in the aftermath of the Deepwater Horizon disaster, the Senate faces another test of fiscal probity. Democrats are seeking to increase taxes on oil companies as part of their vaunted “tax extenders” legislation. The new revenue would flow into the federal government’s Oil Spill Liability Trust Fund, which was created following the 1989 Exxon Valdez crash. But the trust fund is not a “lock-box,” and Democrats are effectively double-counting the revenue as (1) a source of money for the Gulf cleanup effort and (2) an offset for separate spending provisions in the tax bill. This makes the deficit impact of the legislation appear significantly smaller than it actually is.

On June 8, Sen. David Vitter (R., La.) unveiled an amendment that would prevent the manipulation of the new oil-tax proceeds to offset irrelevant congressional expenditures. In a statement, he charged that the Democratic proposal “would dramatically raise taxes for the trust fund and then double-count those same dollars to pay for a grab-bag of deficit spending.” Vitter aides stress that the amendment is not about oil taxes; it is simply about honest budgeting.

Democrats, not surprisingly, accuse GOP senators of harboring different motives. “I think they are lost in a budgetary argument that really is in effect trying to protect the oil companies from this new tax,” Senate Democratic whip Dick Durbin (Ill.) told McClatchy last week. “The Republican position that says we should not impose a new tax on oil companies, to make sure there’s enough money in an oil-spill fund so that taxpayers won’t have to pay for these disasters, is a position which is indefensible.”

Under current federal law, oil companies are taxed at 8 cents a barrel on their U.S. production to pay for the costs of mopping up future spills. Senate Democrats would lift the tax to 41 cents per barrel. (A corresponding bill in the House of Representatives — which narrowly passed on May 28 by a vote of 215 to 204 — would boost it to 34 cents a barrel.) While the revenue is technically allocated to the trust fund, it is not walled off from other government finances; rather, the money is used for all manner of federal spending. The fund presently contains roughly $1.5 billion.

It’s true that many Republicans doubt the wisdom of implementing a 41-cent oil-spill tax. It’s also true that other government “trust funds” — the Social Security fund, for example — are routinely used for unrelated spending. But politicians from both parties have condemned such budget practices as deceptive and improper. Now, with the Vitter amendment, senators are being challenged to endorse fiscal candor.

If approved, the measure would still allow Congress to impose a massive tax hike on Big Oil. Those who have loudly demanded such action should also demand that the revenue be used exclusively for its intended purpose — to address the worst oil spill (and perhaps the worst environmental catastrophe) in American history.

– Duncan Currie is deputy managing editor of National Review Online.


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