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Thune Introduces Plan to Lift Federal Gas Tax

Bill Takes Tax Breaks from Oil Companies, Shifts Savings to Consumers

April 27, 2006

Washington, DC —  Senator John Thune today introduced legislation that would provide immediate relief at the gas pump to American consumers. The Gas Price Reduction Act of 2006 would suspend the 18.4 cents per gallon federal gas tax through the end of September. The lost revenues would be reimbursed by a temporary suspension of a number of tax credits and royalty waivers currently enjoyed by the oil companies. The temporary suspension of these tax credits would remain in place until the federal treasury and Highway Trust Fund are reimbursed – dollar for dollar.

Currently oil companies receive numerous tax incentives for a variety of activities that are already in their interest to undertake. These incentives are for activities such as research, development, exploration and even drilling costs. Due to record oil profits, it is apparent many of these incentives are unnecessary. Many of these tax breaks were created years ago when the price per barrel was low and the federal government was trying to create incentives for further exploration. With the price of crude oil now at $73 per barrel, oil companies do not need taxpayer subsidized incentives to produce oil.

"People should not have to empty their wallets to fill up their tanks," said Thune. "My plan would reduce the price of gas by almost 20 cents, which would provide families and small businesses across America immediate relief at the pump. It is not right for Americans to be pinching pennies while oil companies are posting record profits.

"My plan would temporarily suspend certain tax breaks enjoyed by oil companies and shift those savings to consumers by suspending the federal gas tax. For too long, common sense energy legislation has been blocked and obstructed. Congress must do everything we can to provide relief to American consumers because this is not only a matter of economic security, but a matter of national security. With gas prices at or above $3 a gallon, American consumers—not oil executives—are the ones who need to catch a break."

Highlights of the Gas Price Reduction Act of 2006:

  • Provides American consumers immediate relief at the pump by suspending the 18.4 cents per gallon federal gas tax through September 30th, 2006.

  • Pays for itself by reimbursing the federal treasury and the Highway Trust Fund; dollar for dollar, with tax credits and royalty waivers currently enjoyed by oil companies.

  • Suspends royalty waivers when crude oil hits $50 per barrel.

  • Preexisting royalty leases on federal lands/oceans must be renegotiated with Sec. of Interior to reflect a standard $50 barrel threshold for suspension of royalty waivers.

  • No later than June 30, 2006, the Comptroller General and Department of Justice shall report to Congress whether passthrough savings have occurred.

Tax incentives suspended:

  • Requires all new oil and gas offshore drilling contracts to have a threshold for royalty relief. The Interior Secretary is directed to renegotiate contracts with oil companies that do not currently have a threshold. Companies that do not renegotiate their offshore drilling contracts will be prohibited from entering into any new contracts in the future. Any additional revenue would be used to repay the Highway Trust Fund.

  • Suspends the expensing of Exploration & Development costs until the Highway Trust Fund is repaid.

  • Suspends the Intangible Drilling Costs (IDC) deductions until the Highway Trust Fund is repaid.

  • Suspends the Non-Conventional Fuel Production credit until the Highway Trust Fund is repaid.