The price of gas is up, and so are oil company profits -- and members of a Senate panel may demand explanations today.
The CEOs and presidents of the Big Five oil companies will testify before the Senate Committee on Finance at 9 a.m. ET.
Sen. Max Baucus, D-Mont., and Sen. Orrin Hatch, R-Utah, are expected to be among those questioning the oil executives about their recent profitable first quarters amid industry tax incentives.
"With the price of gas closing in on $5 a gallon, this hearing should serve as a means of finding constructive solutions to expand American energy production and reduce the price at the pump," Sen. Hatch told ABC News in a prepared statement.
The five CEOs scheduled to provide witness testimony are: Chevron CEO John Watson, Shell U.S. president Marvin Odum, ConocoPhillips CEO James Mulva, BP America President H. Lamar McKay, and Exxon Mobil CEO Rex Tillerson.
Baucus released a plan on April 28 to end tax breaks for the five largest oil and gas companies and to invest in alternative energy. He hopes to make the Big Five oil companies ineligible to receive various tax deductions, including the domestic manufacturing deduction, or section 199, and the foreign tax credit for royalty payments to foreign governments. Other industries are eligible to receive those deductions.
Repealing the domestic manufacturing deduction for the entire oil, natural gas and coal industry would provide extra revenue of $18.67 billion from 2012 to 2021.
"High gas and energy prices are hitting folks hard in Montana and across the country," Baucus said in a prepared statement. "Now is not the time to stand idly by while large oil and gas companies get billions of dollars in tax breaks -- now is the time to take concrete steps toward cleaner, more affordable, domestically-produced energy."
The president's 2012 fiscal year budget proposes $90 billion in tax increases for the U.S. oil and natural gas industry, according to the American Petroleum Institute.
The oil companies are expected to defend themselves from accusations that they have contributed to the increasing price of gas and oil.
The national average price of regular gas is $3.97 a gallon, up $1.06 from a year ago, according to the Energy Information Administration this week.
The price of oil futures settled at $98.21 on Wednesday, down from $103.88 Tuesday, according to the New York Mercantile Exchange.
Alan Jeffers, a spokesman for Exxon Mobil, said the company has little control over the market price of oil, which is set globally. Jeffers said Exxon Mobil produces only 3 percent of the global supply of oil.
"The price of oil is affected by a number of different things, including increasing demand in an economic recovery, in particular from Asia Pacific, and the potential for future supply disruptions in unstable regions," Jeffers said, adding that the weak U.S. dollar makes oil imports more expensive for Americans.
Jeffers said that raising taxes places Chevron at a disadvantage on the global stage and also hurts its shareholders, many of whom reside in the U.S. He said 85 percent of the company's shares are held in the U.S., including many pension and retirement funds.
Jeffers added that Exxon Mobil is already one of the highest taxpayers in the U.S. and has an income tax rate of over 32 percent despite its tax incentives.
Exxon Mobil paid $1.66 billion in total U.S. income taxes for 2010, Jeffers said.
ConocoPhillips paid $2.41 billion in total U.S. income taxes for 2010, according to its year end financial statement with the Securities and Exchange Commission.
The Tax Man Cometh, Even to Us, Say Oil Companies
Chevron paid $2.10 billion in U.S. income taxes, according to Kurt Glaubitz, spokesman for Chevron, with a 10 percent profit margin, which he said is lower than that of many industrial sectors. Glaubitz added that Chevron's effective tax rate was 43.9 percent in 2010.
Shell paid $6.08 billion and BP paid $6.61 billion in total global income taxes for 2010, according to their annual reports.
When asked about potential arguments from the oil companies in favor of keeping the current tax incentives or their inability to keep down rising energy prices, Hatch said in a prepared statement: "Turning [the hearing] into a political side show would be a disservice to the people of our nation who are suffering from soaring energy prices made worse by an administration that's declared war on American energy."
Scott Hodge, president of the Tax Foundation, a non-partisan tax research organization, said singling out particular companies or industries for punitive tax measures is "exceptionally bad" tax policy.
"You shouldn't use the tax code for what amounts to political retribution against a particular industry," Hodge said. "If you do that for oil companies, next it will be Pepsi and Coca-Cola for producing sugary drinks, or McDonald's for fatty foods. You start going down the list to use tax code to punish particular industries. Once that starts, you've started horrible precedent for the future."
Hodge said the profitability of the industry is irrelevant to the issue of whether or not we should keep or eliminate a tax break.
"The real issue is whether the tax provision is good tax policy or does it have distortionary and harmful effects on the economy," Hodge said.
By comparison to other industries, Hodge said, the oil industry receives very few tax provisions, at roughly $3 billion. The renewable energy industry receives more than $11 billion in tax breaks while state and local governments receive $13 billion, he said.
2010 CEO Compensation at Major Oil Companies, from Equilar:
1. Rex Tillerson (Exxon Mobil): $21.5 million
2. James Mulva (ConocoPhillips): $17.9 million
3. John Watson (Chevron): $14.0 million
The compensation for H. Lamar McKay, chairman of BP America and Marvin Odum, U.S. president of Shell Oil are not publicly disclosed figures. The CEO compensation figures of those non-U.S. based companies are $12.8 million for Peter Voser (Shell) and $6.8 million for Robert Dudley (BP).