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201 IRET Congressional Advisory 1 (2006)

handle is hein.taxfoundation/iretcgadv0198 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote growth and efficient operation of the market economy. April 6, 2006 Advisory No. 201 HOW TO NOT ATTAIN ENERGY SECURITY A bill of attainder is a legislative act that singles out an individual or group for punishment for some purported crime without a trial. The Constitution of the United States, Article 1, Section 9, paragraph 3, declares: No Bill of Attainder or ex post facto Law shall be passed. The use of bills of attainder by the monarchies of Europe to punish their opponents so offended the Founding Fathers that they wrote a prohibition against such despotic practices into the Constitution. That, of course, has never been the end of the matter. In November, 2005, the CEO's of the five largest oil companies selling fuel in the United States appeared before a joint hearing of the Senate Energy and Natural Resources Committee and the Senate Committee on Commerce, Science, and Transportation on the rise in fuel prices following Hurricanes Katrina and Rita. The witnesses' testimony and their responses to questions could have come directly out of any principles of economics textbook, pointing out that a reduction in supply must cause an increase in price of any commodity if the market is to work to allocate the remaining product in an efficient manner. The witnesses, however, were not cast in the role of teachers speaking to interested students, nor was the setting that of a classroom. Rather, it more closely resembled a courtroom, with some of the Senators accusing the witnesses of economic crimes or, at least, bad behavior. Executives of the same companies were called back to testify before the Senate Judiciary Committee in March, 2006, along with the head of a major refining company. They were again subjected to a series of questions that were more in the nature of accusations than a search for information. Another witness, an independent economist, largely supported the companies' contention that the price increases were related to the world price of oil and gas, not to evil-doings in the executive suites. Although the hearings were not real trials, there was a real verdict. The witnesses were found guilty of presenting an economic explanation of their actions instead of offering a full confession of their political crimes and misdemeanors. There was also a real sentence in the form of three peculiar tax provisions in the Senate version of the Tax Reconciliation bill which singled out the group of five integrated oil companies represented at the hearings. These punitive provisions involve, for the five big firms only, an arbitrary change in the accounting for crude oil and refined fuels inventories that would inflate taxable income, and an unfavorable alteration in the write-off periods of certain exploration and development costs. For the three firms that are headquartered in the United States, a third provision would curtail access to the foreign tax credit for taxes paid abroad by means of redefining what sort of foreign payments qualify as taxes for the purpose of the credit. (The other two firms are subsidiaries of foreign companies, and would not feel this provision.) Other U.S. energy sector businesses would not be affected by these measures, even though the companies may also have experienced g~,3 S I g6~ I ~ee

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