Oil business seen in strong position as Trump tackles tax reform
WASHINGTON: Big Oil could be in a unique position to protect its interests against a Republican proposal to tax imports, given that President- elect Donald Trump’s cabinet is studded with oil champions sensitive to the risk of higher gasoline prices.
Trump’s emerging leadership includes Exxon Mobil Corp chief executive officer Rex Tillerson as secretary of state, former Texas Governor Rick Perry as energy secretary and Oklahoma Attorney General Scott Pruitt as Environmental Protection Agency administrator.
Trump himself has made no secret of his support for the energy sector.
And in Congress, both Republicans and Democrats have close industry ties, including House tax panel chairman Kevin Brady, a Texas Republican whose district takes in the northern Houston suburbs.
House Republicans want to adopt a sweeping tax reform that would sharply reduce tax rates for corporations and end the taxation of US corporate overseas profits.
But a provision known as border adjustability is stirring up controversy. Though intended to boost U. S. manufacturing by exempting export revenues from tax, the provision worries some industries because it would also tax imports.
Because US oil refiners import about half the crude oil they use to make gasoline, diesel and other products, analysts say the change could lead to higher gasoline prices and potentially undermine economic growth.
Integrated oil companies such as Exxon, Chevron Corp, BP Plc, Royal Dutch Shell Plc and ConocoPhillips could also be hit, depending on whether they are net importers.
But the industry’s allies would likely move to soften any rough edges, analysts say.
“I don’t see this mix of leadership figures in the House, Senate and the White House, doing something that has the effect of raising gasoline prices,” said Peter Cohn, an energy analyst with Height Securities, a Washington- based investment firm.
The danger is that a move to protect the oil refiners could open the door to assistance for other industries, including retailers and automakers, which would also face higher costs if no longer able to deduct the cost of imports from their taxable income.
Such a knock- on effect could prevent border adjustability from raising an expected US$ 1 trillion in revenues to help pay for lower tax rates over the next decade.
“We hope that raising these concerns early in the process will allow members of Congress to consider the issues carefully,” Chet Thompson, president of the American Fuel and Petrochemical Manufacturers trade group, said in a statement.
Brady said earlier this month that his committee was sensitive to the impact on specific businesses and “listening very closely to how we can make sure we smooth that out.”
Moreover, some economists dismiss industry worries about higher import costs, saying the dollar’s value would rise in response to such sweeping tax changes and ultimately reduce the cost of imports. Currency markets would adjust to higher oil prices by lowering the dollar value of crude, they predict.
“This argument by the oil industry is, frankly, all wrong,” said Douglas Holtz-Eakin, former director of the nonpartisan Congressional Budget Office, who now heads the American Action Forum think tank.
“Refiners are going to be basically held harmless. They’ll have a lower dollar price of oil. Net cost is the same. And they go about their business. I’m unsympathetic,” he added. — Reuters