Oil Subsidies
Mr. DURBIN. Mr. President, an issue is going to come up next week which is very important for every American family and business; that is, the issue of gasoline prices. I have been across my State, and as I mentioned on the floor earlier, my expert on gasoline prices is my wife. When I speak to her in the morning in Springfield, IL, she will tell me the latest in gasoline prices. Last week, it was $4.20 a gallon. I don't know what it is this week. But what she asks me is--as everyone in Illinois must ask--what are you going to do about it?
It turns out we are going to do something. It may not have a direct impact on gas prices, but it certainly has a direct impact on our policy toward oil companies. You see, American families are being clobbered three times by high prices at gasoline stations: first, at the pump; second, when we give $4 billion in subsidies every year in the Tax Code to oil companies; and third, when we have to borrow the money from China to give to these oil companies and we end up paying interest to China--ourselves, our children, and our grandchildren.
Paying three times for outrageous gasoline prices is an outrage itself. The big oil companies have made almost $1 trillion in profits over the last 10 years--over $35 billion in the first 3 months of this year. Some of these oil companies are breaking records on Wall Street for corporate profits. The Wall Street Journal also reported last week that the CEOs of oil and gas companies who are appearing before the Senate Finance Committee today had the highest median compensation--at $13.7 million annually in 2010, up 17.3 percent from the year before.
In addition to the profits, the oil industry receives over $4 billion in tax giveaways each year. Instead of using that money to lower prices at the pump, these giveaways have merely been used to pad the profits and the compensation of the oil companies and their executives. Yesterday, Senator Menendez introduced a bill, which I am cosponsoring, to end the special treatment of tax breaks given to the five largest oil companies in America. This would save Americans over $4 billion a year, and it is our goal to use that money to reduce our Nation's deficit.
Americans across the board agree it is time to end this corporate welfare for the big oil companies. In a recent poll, three out of four Americans support eliminating tax credits for the oil and gas industries to reduce the Federal deficit. We have to deal with our deficit that is growing at an unsustainable rate, and I am hoping this will be a commonsense, good-faith, bipartisan agreement to end these subsidies. We can take the taxpayer dollars flowing to the oil companies and give them, instead, to those who are dealing with our deficit to reduce it.
Incidentally, we are not talking about business expenses at these oil companies, which is what many of these executives would like to have people think. These are subsidies used to increase profits and reduce their tax burden. Last year, Exxon had an effective tax rate on its U.S. income of 16 percent--less than half the corporate tax rate. According to the Congressional Budget Office, the average American has an effective tax rate of over 20 percent. So Exxon was actually paying a lower tax rate on their profits than the average American pays on their income.
In addition, the big five oil companies have used 71 percent of their profits not for exploration and production, which is what they would like you to think, but rather for boosting share prices. Actually, they used only 12 percent of their prices for exploration and new development. In other words, these oil companies spend almost six times as much on dividends and stock buybacks as they[Time: 17:40] do in looking for new sources of oil. The primary use of these subsidies is not to discover new oil, it is to discover new record-breaking profits.
It is time for government handouts to these extremely profitable, well-established companies to come to an end. Ending them will not raise gas prices, as some Republicans have argued. We are dealing with a world market for oil. The price is set by the global market. Gasoline prices have risen significantly, even with these subsidies in place.
Removing them will not change these prices.
The Congressional Research Service has said the effects of removing the subsidies would be very small. According to the Department of the Treasury, removing them would cause the loss of less than one-tenth of 1 percent of the global oil supply and have little or no impact on prices in the United States.
In addition, removing oil subsidies reduces U.S. oil production by less than one-half of 1 percent, and it will increase exploration and production costs by less than 2 percent for companies that are making record-breaking profits.
Removing these subsidies will not affect the price of gasoline, nor will increasing our domestic production. That is the other thing. Remember the chant ``drill baby drill''? It was all over the place during the last Presidential campaign. In fact, domestic oil production in 2010 was at the highest it has been in 7 years. Even with production strongly increasing, oil prices keep going up, and so do gas prices.
Keep in mind, the United States has less than 2 percent of the world's proven oil reserves and every year we use 25 percent of the world's oil production. Even though we have increased production, we still see prices going up. Our fuel price would not be altered by increased drillings. We would still need to import over 50 percent of our oil.
As has been said many times: We can't drill ourselves out of this problem. We simply don't have enough oil. The only way to end our dependence and insulate ourselves from high gas prices is to finally develop for America a national energy policy. Other countries have one. We don't. We need a sound, comprehensive policy that includes plans for energy efficiency and new renewable sources. Increased drilling is not going to significantly reduce gas prices.
Actually, Congress has taken another step to help consumers bring prices under control at the gas pumps. Last year, Congress voted to reform the swipe fee that big banks get paid from merchants on debit card transactions. So every time you fill the tank and swipe your debit card, you are paying, on average, 40 cents or more to the bank for the swiping of that card. What we have done is to say the Federal Reserve should establish a reasonable and proportional level for that fee. They think it should be much less than 40 cents.
The big banks and credit card companies are screaming bloody murder. The notion that the gas company, the convenience store, the retailer, the restaurant, the hotel would not have to pay these high swipe fees means a loss in profits to the big banks. But what it means to consumers is more competition in price and lower prices. As long as you have a competitive market--one gas station across the street from another--when you reduce the cost to the owner of the gas station, you are more likely to see a reduction in the prices charged to consumers.
I received a letter on Tuesday from 52 national, regional, and State trade associations representing virtually all the gas retailers in America. They made it clear swipe fees inflate gasoline prices and that because the gas retailing industry is extremely competitive, lower swipe fees will produce savings that will be passed on to consumers.
The big banks and credit card companies are trying to stop this reform. You can understand that. These credit card companies and big banks make over $1 billion a month on what they charge for our using a debit card. If you bring it down to an actual reasonable and proportional cost, they will make less, merchants will get more, and consumers will pay less.
There is a movement to try to delay this for a so-called study of 30 months. I did the calculation. Thirty months times the profits the big banks and credit card companies will take out of the existing swipe fee comes to about $40 billion that is going to be taken out of the American economy if we agree to a 2 1/2 - or 3-year delay of this. That is not fair to consumers, it doesn't help the economy, and it doesn't help bring down gasoline prices.
American families can't afford to continue paying for high gasoline prices at the pump, in subsidies to oil companies, and in interest paid on money borrowed from other governments to help us pay these subsidies. It is time to end these handouts to the big profitable oil companies. It is time to rein in the swipe fee that is benefitting the biggest banks in America as well as the credit card companies. It is time to finally focus on families and consumers across America who have a challenge today because of this increase in cost.
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