Democrats Pursue New Tactics in War on Energy Companies

With the midterm elections approaching, it is now clear that cap-and-trade, Democrats’ main weapon in their war on energy companies, is effectively dead–that is, at least until after the election, when some Democrats who may then be exiting Congress will feel more comfortable supporting it.

However, the demise of cap-and-trade does not mean Democrats have put what some dub “plans” to target energy companies on hold completely, or placed them on the back burner.

The Obama administration has worked hard to impose a moratorium on deepwater drilling, which one prominent expert says could directly result in a loss of $2.1 billion in output, nearly $100 million in forfeited tax revenue, and close to 10,000 mostly middle-class job losses.

In addition, the agency responsible for issuing new permits to drill in the Outer Continental Shelf (“OCS”) has issued just four permits during the last three months, as compared to 56 permits in the three months prior to that.

Furthermore, Democrats are reportedly targeting energy companies with higher taxes.

Tax experts say the Obama administration and congressional Democrats want to make two changes to the tax code that, ironically, opponents claim would end up hurting domestic producers and benefiting foreign companies like BP–the company on whose throat the Obama administration was previously claiming to have its boot.

President Obama’s 2011 budget proposal reportedly recommends repealing certain tax credits available to companies who pay taxes on income earned abroad. Currently, such foreign tax credits are available to companies with overseas operations, having originally been extended to diminish discrepancies in competitiveness between foreign companies, which are taxed only by jurisdictions in which they earn money on income earned within them, and US companies with operations abroad, which are taxed both by such foreign jurisdictions on income earned within them and by the US government, on all income.

Separately, however, observers say the President and congressional Democrats want to exclude energy companies from Section 199 tax relief, which allows companies to take a deduction in respect of a certain proportion of domestic production each year. Section 199 relief was originally introduced in order to spur job creation in the manufacturing sector.

Ironically, not only could excluding energy companies from being able to rely on Section 199 indirectly result in companies like BP or Venezuela’s Citgo benefiting, critics say that like the foreign tax credit proposal, if implemented this proposal could result in further job losses, just as a moratorium is predicted to do. That, combined with fears that a shutdown in domestic drilling could lead to oil companies relocating to, among other countries, Cuba, could turn such proposals virtually toxic for Democrats running both in states affected by the BP oil spill and in which the energy sector is a big employer.

According to one Republican political consultant with whom we spoke, “The more sunlight is shone on the administration’s actions already with regard to drilling, and the more that shines on these tax proposals, the more I think you will see candidates from Charlie Melancon to Charlie Crist diverge from the administration and congressional Democrats.”

To the extent that Florida Sen. Bill Nelson and other Gulf Democrats currently in office also parts ways with their colleagues and President Obama, that could force a change in the administration’s posture, and the approach being taken by congressional Democrats, overall.

However, many of those who stand to be affected by these various policies are reportedly not leaving anything to chance. “More and more, I think folks in DC should expect to hear from ordinary people who stand to be affected by these things,” said that political consultant. “To borrow from Joe Biden, this is a BFD for a lot of people.”