Frist Backs Off Plan to Tax Oil Companies to Fund $100 Taxpayer Gasoline Rebates

Senate Majority Leader Bill Frist, under pressure from business leaders, retreated Monday from a plan that would have used a tax increase on oil companies and other businesses to fund a $100 gasoline rebate for millions of motorists.

Frist, the Tennessee Republican, had proposed an accounting change that would have required oil companies to pay more taxes on their inventory of crude as a way to pay the one-time rebate which GOP leaders rolled out last week as they scrambled to find ways to ease public anger over soaring gasoline prices.

In a statement, Frist said he will still push the rebate, but abandoned the accounting change and said the Senate Finance Committee planned a hearing on the issue in the near future.

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Frist gave no indication how the rebate, estimated to cost about $10 billion, will be paid for, although he said he still planned to "find a way to bring our proposals to the Senate floor for a vote."

The rebate proposal, meanwhile, seemed to have little appeal among motorists who would benefit.

Aids to several Republican senators, including some who support the proposal, said Monday they have received generally negative feedback from the public in telephone calls and e-mails.

"There are some who say this is a Band-Aid and they want a real solution. .... There are people who say, `Do you think I can be satisfied so easily,'" said Don Steward, an aide to Sen. John Cornyn, R-Texas. He said almost all of the comments received about the rebate — which Cornyn has characterized as "a theatrical response" — have been negative.

Another Senate staffer, who spoke on condition of anonymity because the senator was among those who have been pushing the GOP energy package, said voters know that with gas costing more than $3 a gallon the rebate likely will pay for only a couple of tanks of gas.

"It's probably one fill-up for a Sequoia," added the aide, referring to the Toyota SUV that gets 15 miles to the gallon in city driving.

But Frist said the rebate "will help people who are emptying their wallets at the pump. ... We've got to help those who are feeling pain ... as quickly as possible." Single taxpayers earning up to $145,950 and married couples earning up to $218,950 would get the rebate in August under the Frist proposal.

The Energy Department reported Monday that the average cost of regular grade gasoline nationwide had increased to $2.92 a gallon with many parts of the country showing prices at more than $3 a gallon.

The tax accounting change involving inventories was the most substantial tax hit Congress has been seriously considering in response to the huge oil industry profits at the time of soaring costs at the pump. The change, applying only to five of the largest oil companies, had been approved by the Senate, but faced strong opposition in the House.

Oil companies waged an intense lobbying effort to block the change.

Rex Tillerson, chairman of Exxon Mobil Corp., at an energy conference Monday, called it "nothing more than a backdoor windfall profits tax" and a "very dangerous and very poorly thought out step to take." The change was estimated to increase taxes for the five major oil companies by $4.3 billion over five years.

Frist would have expanded the tax to other industries, which prompted a chorus of protests, prompting his retreat from the proposal. The National Association of Manufacturers and Wal-Mart Stores Inc., among others, made known their strong opposition to the inventory taxing change.

Senate Republicans said the rebate is an attempt to counter the Democrats' push for a suspension of the 18.4 cent a gallon gasoline tax for 60 days.

A gasoline tax "holiday" has been proposed by Sen. Bob Menendez, D-N.J., and embraced by the Democratic leadership as a short-term response to counter the sudden run-up of gas prices.

While one GOP senator, John Thune of South Dakota, introduced his own tax holiday bill, most Republicans oppose the idea.

They argue there's no assurance the tax break — which is collected from refiners — will be passed on to consumers at the pump. If the lost revenue from a tax suspension — estimated at $6 billion — is made up by imposing additional taxes on oil companies, as Democrats envision, there's incentive for companies not to pass the savings on to retailers, said critics of the plan.