GOP Senator Demands Probe into Oil Profits
ALEX CHADWICK, host:
This story coming up: where to buy cheap gas in your neighborhood. I'm Alex Chadwick.
MADELEINE BRAND, host:
I'm Madeleine Brand. It's not cheap gas, exactly, but lowest prices while they last. We'll talk to a website guide. First though, record first quarter profits in the oil industry and what happens next.
CHADWICK: Political concern about oil and gas prices and what to do about them. There are various proposals on Capitol Hill now. Cut tax breaks for the petroleum industry. Some of those breaks passed just last year. Or a rebate from the government of $100 for every American taxpayer.
Yesterday, the Senate Finance Committee sent a letter to the IRS asking for the tax records of the 15 largest oil companies. We're joined now by the Chair of the Senate Finance Committee, Iowa Republican Charles Grassley. Senator Grassley, thank you for coming back on the program. And first, a question to clarify things. When the Senate Finance Committee asks the IRS for the tax records of the oil and gas industry, do you get them?
Senator CHARLES GRASSLEY (Republican, Iowa): We will, and we occasionally look at tax records. We have a chance through our staff to analyze it and use the results of our investigation on whether or not there needs to be any change in tax policy. That's the use of them in most types. I would suggest to you that right now every member of Congress is trying to do whatever he can because of the outrageous $3 gas and the outrage coming from the public.
You know, I would like to use the word mystery. It's a mystery to me why when you have high reserves of crude oil that we have high gas prices, because usually the law of supply and demand governs. So I'm going to the tax records as Chairman of the Finance Committee to find out if we can find an answer.
CHADWICK: Senator, these companies can afford the slickest accountants in the world who, you know, it's a question of whether they try to make things clearer or more mysterious. But what is it you hope that you can actually settle?
Sen. GRASSLEY: Settle whether or not the accounting methods cover up anything that would lead to more profit. But in most cases, it's a question of are they paying all the tax that's legally due.
CHADWICK: There's this question of existing assets that the companies have, existing stocks of petroleum and wells and so forth. And let me ask you about the accounting method that I think these oil companies employ called last in/first out, or LIFO. So when they sell a barrel of oil that they bought for $20, they get to treat it as though they had paid $70 for it. Is that the accounting method that they're using now?
Sen. GRASSLEY: Pretty much. That may be a simplification of it, but what we're changing it is so that we're not going to do this just for oil companies. 'Cause I think it's wrong just to deal with one segment of the economy when you change basic tax law and inventory. We're going to make it corporate policy throughout all of industry.
CHADWICK: But that's what they're doing. They're selling oil that they paid $20 a barrel for. For tax purposes they get to say, well, if we wanted to buy that barrel of oil today, it would cost us $70. So that's how we're going to treat it on our tax records.
Sen. GRASSLEY: That's right, and obviously they pay less taxes.
Sen. GRASSLEY: So when you change it to first in/first out method of taxation, they of course they're going to pay on the difference between what oil is selling for today, the income from that and the $20 that you use as an example.
CHADWICK: There's a statement from the American Petroleum Institute today. These are big numbers that we're seeing this week but we're a big industry and we're not actually doing that much better than anyone else in American industry. These are just big numbers and we're in a big business.
Sen. GRASSLEY: But they're paying their corporation executives embarrassingly high salaries. It gets back to things bigger, as far as I'm concerned. And that's whether the board of directors are looking out for the reputation of their company, looking out for the interests of the stockholders when they pay that kind of salary, when they make this kind of profit. You know, making 20 percent when gas is $1.50 is, may be justifiable. Making 20 percent when it's at $3, making twice the profit from a markup that could probably be less and still make a lot of money.
But more importantly, doing all this in a period of nervousness, in a period of uncertainty just don't sound reasonable. Unethical, immoral, not, maybe not illegal, but you know, there's a certain amount of social responsibility that corporations have, particularly in a free market.
CHADWICK: Charles Grassley, Republican from Iowa, Chair of the Senate Finance Committee. Senator, thanks for being with us on DAY TO DAY.
Sen. GRASSLEY: I enjoyed it, and always do.