Obama's budget aims at oil industry tax breaks Element in president's budget has been rejected before by lawmakers

Jack Gerard, CEO American Petroleum Institute during an editorial board interview Wednesday, April 21, 2010, in Houston. James Nielsen Chronicle Jack Gerard, CEO American Petroleum Institute during an editorial board interview Wednesday, April 21, 2010, in Houston. James Nielsen Chronicle Photo: James Nielsen, Staff Photo: James Nielsen, Staff Image 1 of / 1 Caption Close Obama's budget aims at oil industry tax breaks 1 / 1 Back to Gallery

WASHINGTON - In unveiling his $3.8 trillion spending plan for the government on Wednesday, President Barack Obama revived his attack on oil industry tax breaks and formally launched a plan to pay for alternative vehicle research with drilling dollars.

While the tax plans have no chance of approval this year - lawmakers have rejected similar proposals many times before - they drew outrage from oil and gas industry leaders who said Obama is seeking to use the sector as a piggy bank.

The fiscal 2014 budget proposal aims to raise $2.5 billion over the next decade by raising the royalty rates for oil and natural gas produced on federal lands and waters, with the revenue steered toward a new Energy Security Trust for research in alternative fuels and vehicles.

American Petroleum Institute President Jack Gerard said the move is shortsighted, especially since a single sale of offshore drilling leases can net more than $1 billion just in bids to buy drilling rights - even before the royalty payments from oil and gas that might be produced on the acreage.

The administration says Obama's budget would save $39 billion over the next 10 years by eliminating "fossil fuel tax preferences" geared toward oil, gas and coal. Items on the chopping block include the oil industry's ability to claim a domestic manufacturing deduction broadly available to other sectors and write off "intangible drilling costs" such as hauling and site preparation.

Virginia Lazenby, chairwoman of the Independent Petroleum Association of America, said the proposed tax changes would pare the capital companies can invest in new wells.

Rep. Gene Green, D-Houston, said it's unfair to single out the oil and gas industry for taxation he said would "stifle job creation and drive up imports of crude oil from foreign nations that are hostile to us."

But advocates of Obama's plan say the tax incentives - some nearly 100 years old - have outlived their usefulness.

"These companies earned billions of dollars in recent years due to high oil and gasoline prices and do not need additional support from taxpayers," Daniel Weiss of the Center for American Progress said.

The administration also proposed establishing new "use-it-or-lose-it" fees on undeveloped federal oil and gas leases, while shortening the duration of those contracts.

A separate proposal for new user fees on federal leases is designed to offset $40 million in inspection of work on those tracts.

The plan would devote $672 million to oil and gas programs at the Interior Department, including $169 million for the Bureau of Ocean Energy Management and $222 million for the Bureau of Safety and Environmental Enforcement.

And a proposed 20 per- cent budget increase for the Bureau of Land Management could accelerate a conversion to electronic permitting, streamlining communications between the bureau and companies seeking permits, Deputy Interior Secretary David Hayes said.

Obama also is asking Congress to require that effective in 2014, energy companies pay a penny a barrel more than the 8 cents they pay now into a trust fund set aside for tackling oil spills. The 2010 Gulf of Mexico spill sparked similar calls that never advanced.

And the proposal asks for a more expansive definition of what types of crude production require payments into the trust fund, since the fee isn't charged now on deposits extracted from kerogen-rich rock or from oil sands bitumen now harvested in Canada. The State Department is considering whether to issue a permit for Trans-Canada Corp.'s proposed Keystone XL pipeline.