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Bush rejects tax on oil companies' windfall profits

President expects companies to invest in alternative fuels

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President Bush on Friday said new technology will solve the problem of rising oil prices.

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WASHINGTON (CNN) -- President Bush on Friday rejected calls to tax oil companies' record profits, but said he expects those companies to re-invest those profits in alternative fuels and new energy technologies.

"My attitude is that the oil companies need to be mindful that the American people expect them to reinvest their cash flows in such a way that it enhances our energy security," Bush said.

Such investment projects could include new pipelines, expansion of refineries and more exploration and investment in renewable sources of energy, he said. (Watch President Bush call for private investment in new energy alternatives -- 1:54)

Consumers also expect to be treated fairly at the pump, Bush said.

"These oil prices are a wake-up call. ... We need to get off oil. The best way is to do that through technology," such as a new battery technology that will enable us to have plug-in hybrid vehicles.

"The temptation in Washington is to tax everything," Bush said while taking questions from White House reporters. "The answer is for there to be strong reinvestment to make this country more secure from an energy perspective."

The president also called for Congress to provide "regulatory relief" to oil refiners that would allow them to increase their capacities.

"One reason there's tight gasoline supplies is we haven't built any new refineries since the 1970s," the president said.

Higher fuel standards

On Thursday, the president said he wants to raise fuel-efficiency standards on automobiles, as members of both parties jockeyed for political position on the issue of rising gas prices. (Full story)

Bush called on Congress to give him the authority to set the standards for passenger cars sold in the United States as a means of reducing the nation's demand for gasoline.

"I encourage them to give me that authority," Bush told reporters during a visit to a service station in Biloxi, Mississippi. "It's an authority I used for light trucks, and I intend to use it wisely if Congress will give me that authority." (Watch political frenzy spurred by gas prices -- 2:01 )

Congress first set the passenger car standard for fuel economy in 1975, and it has remained at 27.5 miles per gallon since 1990. The mileage is a weighted average of an automaker's fleet, not a requirement for individual models.

Democrats: Cut firms' tax breaks

Republicans proposed an amendment Thursday that would give the Transportation Department authority to issue fuel efficiency standards for passenger vehicles, expand tax incentives for the use of hybrid vehicles and push for more research into alternative fuels and expansion of existing oil refineries.

It would also provide most American taxpayers with a $100 rebate check to offset the pain of higher pump prices for gasoline. (Full story)

However, the GOP energy package might face tough sledding because it also includes a proposal to open part of the Arctic National Wildlife Refuge (ANWR) in Alaska to oil exploration, which most Democrats and some moderate Republicans oppose.

Senate Majority Leader Bill Frist of Tennessee called it "a bold package ... that will give consumers relief at the pump and help to bring down the price of gas over the longer term."

Wednesday, on the other side of the aisle, Democrats called for a new energy bill and federal legislation to punish price gougers. House Minority Leader Nancy Pelosi of California said Democrats want to roll back billions in tax breaks for oil companies.

On Thursday, she reiterated her party's interest in forcing oil companies to ease the burden of high gas prices.

"The oil companies are making record profits; they're getting billions of dollars of subsidies and royalty holidays from the Republicans in Congress and the Bush administration," she said.

"What do the Republicans suggest? Let's do away with the environmental rules, let's drill in the ANWR."

Unlikely to pass

The Republicans' energy package will be offered as an amendment to an emergency spending measure before the Senate to fund the Iraq war and hurricane relief, according to a senior GOP leadership aide.

It is sponsored by Sens. Charles Grassley of Iowa, Ted Stevens of Alaska, Pete Domenici of New Mexico and Rick Santorum of Pennsylvania.

Under Senate rules, either the GOP amendment or the Democratic alternative would probably need 60 votes to pass, which is considered unlikely. However, the amendments would give senators a chance to cast votes on measures designed to help constituents being hit by high gas prices.

As outlined by the senior GOP leadership aide, the energy package would give taxpayers the $100 rebate, repeal tax incentives for oil companies and allow the Federal Trade Commission to prosecute retailers unlawfully inflating the price of gasoline.

The GOP senators are also calling on the Bush administration to suspend deposits into the Strategic Petroleum Reserve for six months to increase the nation's oil supply. President Bush announced Tuesday that he would halt new deposits into the reserve until after the summer driving season. (Full story)

Speaking to reporters Friday, Sen. John Cornyn (R-Texas) questioned whether the rebate checks were more than just a gimmick.

"Some of these quick fixes or sort of more theatrical responses like a $100 rebate is not really going to solve the problem," Cornyn said. "The only thing that's really gonna solve the problem is a combination of increased supply and alternative and diverse forms of energy."

"Everybody will take free money. Who wouldn't take free money?" Cornyn said.

No short-term relief

If any of the proposals survive election-year partisanship to pass, Democrats and Republicans said they would be unlikely to affect the price of gas in the short term.

That opinion was shared by Federal Reserve Chairman Ben Bernanke during congressional testimony Thursday.

"Unfortunately there's nothing, really, that can be done that's going to affect energy prices or gasoline prices in the very short run," Bernanke said.

He warned, however, that record high oil prices remain a concern that could pose a risk to both economic growth and the inflation outlook. (Full storyexternal link)

CNN's Dana Bash contributed to this report.

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