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Frist abandons plan to tax oil firms

But vows to pursue idea of $100 rebate to counter fuel costs

WASHINGTON -- Senate majority leader Bill Frist, under pressure from business leaders, retreated yesterday 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, a 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 that 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.

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.

Aides to several Republican senators, including some who support the proposal, said yesterday that 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 Senator John Cornyn, a Texas Republican. He said almost all of the comments received about the rebate, which he 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 probably 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 yesterday 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 yesterday, 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 Senator Bob Menendez, Democrat of New Jersey, and embraced by the Democratic leadership as a short-term response to counter the sudden run-up of gas prices.

Most Republicans oppose the idea.

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