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American Morning
Revelations from bin Laden's Private Journal; Flood Disaster Rolls South; Mandatory Graduation Etiquette for HS; Education in America: Challenging Kids in Math and Science; NYC Terror Arrests; Plane Slides Off Runway; Oil CEOs on the Hot Seat; New Yorkers Fed Up with Will Smith's Extra-Large Trailer
Aired May 12, 2011 - 07:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KIRAN CHETRY, CNN ANCHOR: He was hunted around the world in hiding in Pakistan, but Bin Laden's private journal reveals he was very active in every recent al Qaeda plot and had chilling advice for al Qaeda operatives on new attacks against the United States. We have new details on this AMERICAN MORNING.
CHRISTINE ROMANS, CNN ANCHOR: Good morning. It's Thursday, May 12th, and welcome to AMERICAN MORNING you guys.
ALI VELSHI, CNN ANCHOR: Let's begin with what Kiran was just talking about. We begin with what's being called Bin Laden's blueprint for terror. It's a handwritten journal discovered inside the Pakistani compound where he was hiding, seen here. It contains notes suggesting future attacks on the United States.
CHETRY: And it turns out that his compound was much more than a hiding place. Bin Laden was communicating back and forth with al Qaeda operatives.
ROMANS: Our Barbara Starr has been working her sources. She's live at the Pentagon. What kind of -- how does this fill out the picture of Bin Laden and the potential threat he could still pose to the United States, Barbara?
BARBARA STARR, CNN PENTAGON CORRESPONDENT: Well, you know, what U.S. officials are saying is one of the things they captured when the SEALs took that intelligence haul out of the compound was Bin Laden's personal journal. They've called it a diary, a journal, the al Qaeda playbook, whatever you want to call it. These are the personal writings, they believe, of Osama Bin Laden.
One of the things all of this demonstrates is that he did have communications we are told with the outside, with his operatives out in the field. How effective those communications were, the extent to which they carried out his orders, I think, still remains to be assessed by the United States.
But in this journal bin Laden makes some points that are pretty chilling. He focuses once again on trying to attack the United States. He writes about attacking the United States and the importance of doing that. He offers his guidance on how to attack the United States. We are told some of the writings talk about pinpointing specific dates, anniversary dates, the ten-year anniversary of 9/11, July Fourth, Christmas Day, the things that would get the biggest attention in the United States, for example.
But again, coming back to all of this, what officials tell us is they are still assessing this, trying to figure out how effective his communications were. They have no doubt that his compound was his command and control but how that translates into his operatives in the field and what they carried out and what they might be trying to carry out remains to be seen. So far, very importantly, they say they have uncovered no plots with specific time, date and place. Ali?
ROMANS: Barbara, I wanted to ask you a question about the reports of the son. One of the mothers, the wives of bin Laden who was in the compound who is insisting to Pakistani officials that her son escaped. U.S. officials are downplaying that thinking it would have been impossible for him to have escaped.
STARR: That's right. U.S. officials are saying they don't see how it would have been possible for anyone to escape from the compound. They know about these reports. I mean, point one. They insist, they absolutely say they took no bodies dead or alive from the compound except pore the dead body of Osama bin Laden. So they have no prisoners. They have no detainees. He was the only body they removed from the compound.
They think it's very unlikely someone was able to escape. First of all, how would they have gone over 18-foot walls? And there were U.S. military personnel, Seals, very covertly, we have reported outside the compound walls providing perimeter security so the Seals could get out, no other people from the neighborhood could come and approach. So there was perimeter security. They think it's unlikely that anyone escaped during this assault.
CHETRY: Barbara Starr with those new details, thanks.
VELSHI: Select members of Congress are getting a look at the bin Laden death photos. Oklahoma Senator James Inhofe telling CNN that some of the images were pretty gruesome, but there is no doubt they were bin Laden.
(BEGIN VIDEO CLIP)
SEN. JAMES INHOFE, (R) OKLAHOMA: There are 15 pictures. The first 12 were taken in the compound -- it is obvious right after the incident took place. So they're pretty grueling. The other three were taken on the ship and they included the burial at sea.
(END VIDEO CLIP)
VELSHI: Inhofe believes that some of those photos should be made public.
ROMANS: Not long ago one of bin Laden's sons was denouncing his father's activities now that son Omar bin Laden is lashing out against the United States suggesting the killing violated international law. Our Deb Feyerick has been following this part of the story for us. Good morning, Deb.
DEBORAH FEYERICK, CNN CORRESPONDENT: Good morning. It certainly makes clear, this statement, that in fact the family was watching media reports of their father's death. It comes from bin Laden's fourth born son Omar on behalf of he and his brothers who identify themselves as bin Laden's lawful children and heirs.
It lays the operation for Operation Geronimo squarely on Obama. They question why their father who was unarmed was shot and not taken in to custody for trial. It is classified as an assassination and execution. In their minds it violates international law. The president made clear it does not. Listen to the White House response.
(BEGIN VIDEO CLIP)
JAY CARNEY, WHITE HOUSE PRESS SECRETARY: I've addressed the legal foundation for the actions the president ordered. We feel very strongly that the successful mission against a mass murderer of Americans and people around the world was entirely justified.
(END VIDEO CLIP)
FEYERICK: Now, the sons also called the shooting of bin Laden's wife who reportedly was hit in the leg as, quote, "unworthy of special force," unquote. The letter drew an angry incredulous response from one New Yorker who lost his wife in the 9/11 attacks.
(BEGIN VIDEO CLIP)
CHARLES G. WOLF, LOST WIFE ON 9/11: The man needs to get a dose of reality. His father was the most heinous man to come around since Adolf Hitler and Josef Stalin, OK? His father was pure evil. If he cannot comprehend that, then he needs to -- he needs to work on that.
(END VIDEO CLIP)
FEYERICK: Bin Laden's sons say they were deprived of the right to burr their father had was buried at sea. Their demands include reuniting family members, the women and children, conclusive proof that their father's dead and investigation into the operation, specifically why kill rather than capture bin Laden. They've given the U.S. 30 days before they take their case to a court of international law. There's a lot of bravado in this letter, a disconnect almost.
VELSHI: We've covered the fact that he's disassociated himself from his father in the past. How clear was that disassociation in the past and does this seem like he's going back on that?
FEYERICK: It's interesting, he condemned his father's actions, he condemned Al Qaeda and the tactics they used killing people. But now he's saying "Just as I condemn my father I condemn the president of the United States for killing a man rather than bringing him in to a court of law." But again, this is -- the United States made clear this is the right of self-defense. It is covered under the U.N. charter. The family seems to be just speaking out and the fact that you would demand something like this. It's very unclear what they hope to accomplish by this.
CHETRY: And whether it will go anywhere in the courts remains to be seen.
FEYERICK: Exactly. How do you defend a Hitler?
ROMANS: He had five wives, at least 20 children. There could be varying different emotions among them. He obviously has been absent in some of their lives for the last ten years. That's a family dynamic that none of us will understand.
FEYERICK: Bin Laden started as hero when he was fighting against the Soviets. But then he turned and he clearly became obsessed with the United States in way that was wholly unnatural. As my colleagues, every time there's a holiday, we think, oh, god, now what is going to happen this time. July Fourth, god, somebody's going to do somebody.
ROMANS: Thanks, Deb.
CHETRY: NATO forces launching another series of missile strikes on the capital city of Tripoli. Four rockets hitting Moammar Gadhafi's compound. Two people were killed and 27 others taken to a hospital. This is according to Libyan government officials.
Meanwhile, Gadhafi has resurfaced, Libyan state television running this video of Gadhafi meeting with tribal leaders. It's the first time he's been seen in public.
CHETRY: There's a new crackdown on protesters in Yemen as 13 people have reportedly been killed in recent clashes with security forces. Witnesses say many government troops used live ammunition against protesters in the city of Sana'a.
VELSHI: A devastating earthquake rocking the southeastern coast of Spain. Listen to this.
(BEGIN VIDEO CLIP)
(SHOUTING)
(END VIDEO CLIP)
VELSHI: That's video of a church belfry crumbling to the ground narrowing missing a TV reporter in the historic town of Lorca. It was taken moments after a 5.1 magnitude earthquake hit Spain's coast last night. There is widespread damage. At least eight people were dead but thousands more are sleeping in the streets. Many residents say they've been ordered to stay away from their homes out of fear those homes would collapse.
ROMANS: The verdict coming in just minutes ago ending a 30-year legal battle. A Nazi guard known as "Ivan the Terrible" sentenced to five years in a German prison. As 91-year-old John Demjanjuk guilty of helping in the murders of 30,000 Jews in a Nazi concentration camp. He was a member of the red army and signed up to work in a death camp in occupied Poland after he was captured by Germans.
CHETRY: Reverend Billy Graham is being treated for pneumonia in a North Carolina hospital. He's listed in stable condition and tests on his heart have come back normal. A spokesperson for the evangelist minister said that graham experienced breathing trouble and developed a fever Tuesday night. Because of his age and recent health issues he was admitted to the hospital.
VELSHI: An airline passenger accused of trying to open an emergency door during flight says it was an overreaction. The 43 year old Robert Hersey pleaded not guilty to charges of interfering with the crew on the Delta flight from Orlando to Boston. Hersey admits touching the next door panel was a mistake, but said he wasn't a threat.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: There was a plastic cover.
UNIDENTIFIED MALE: Were you surprised when it got to Logan?
UNIDENTIFIED MALE: When the sucker landed on my lap, nobody was more surprised than I was.
UNIDENTIFIED MALE: You weren't making some lunge for the door?
UNIDENTIFIED MALE: Not at all. I was sitting in my seat just farting around, flipping the tray.
UNIDENTIFIED MALE: Bored on a plane.
UNIDENTIFIED MALE: Exactly.
(END VIDEOTAPE)
ROMANS: Bored, he said. Some witnesses said it was something else.
VELSHI: Some witnesses claim he was intoxicated. He claims he had only a few beers before getting on board. Again, part of me hears that. I'm one of these irritable guys.
ROMANS: Irritable?
VELSHI: Nervous energy. We're all kind of like that. You have a good inner stillness, but we're always messing around with stuff. But even I know, don't touch the thing on the door. Like that's going to get people agent nervous. Don't touch the door. Sit somewhere else.
CHETRY: Bring your iPod if you're bored.
VELSHI: It appears clear to me that he was not trying to open the door and do -- you know, do damage to the flight or hurt people. Still, don't touch the door.
ROMANS: Enough of all that nonsense.
VELSHI: We hope. It's fourth time this week.
ROMANS: Mississippi flood disaster, hundreds of homes underwater. Louisiana now has a tough decision. They have to decide whether to open more floodgates and unleash a wall of water to try to control this monster.
CHETRY: He spread his bat wings to reveal -- pit stains! Sorry. What was this batman doing on the side of a building?
(LAUGHTER)
CHETRY: It's 14 minutes past the hour. We're still focusing on the devastating flooding, hundreds of homes now completely under water in Mississippi. The disaster is one they knew was coming. Now it's here and 14 counties have now been declared disaster area, major disaster areas in the state of Mississippi alone. Meantime, the swollen river continues to roar south all the way to the last place that needs the water, New Orleans.
VELSHI: In Louisiana right now, it's not a matter of if there will be a flood. It's a matter of where to put that flood. Officials right now are debating on whether to open the floodgates on the Morganza spillway.
ROMANS: This spillway is holding back a 20-foot-high wall of water that could wash out some three million acres of land. Rob Marciano is in the town of tunica. One of the greatest images earlier this week was this huge bladder of river water, trying to find creative ways, Rob, to manage this river, manage the unmanageable.
ROB MARCIANO, AMS METEOROLOGIST: Exactly. And you know, we've been trying to do that for decades now. And some of the engineering that we've performed on the river has kind of come back to bite us.
There's this area just north of here and west towards the river called the Tunica cutoff. And basically it's an area where they shortened the river to benefit shipping basically. And that has created kind of a lake on one side and the Mississippi River on the other. And in between that you've got people that are living there.
Well, this is very susceptible to flooding. And that's the area that really got hit hard the past week with the rising rivers, the waters of the Mississippi.
Well over 200 homes completely submerged. Hundreds of people have been evacuated obviously from that area. A lot of them are staying right here in this shelter. They're just starting to get up now, so we're not going inside and get their morning going. But we're here yesterday afternoon speaking with a lot of them and for many of them, they've already been in these shelters out of their homes for a couple of weeks.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: After this flood, it's uncertain. You don't really know. Right now, I'm just -- I thought I had it all together. I thought I had it under control. But the last couple of days, I just couldn't -- I've been confused and trying to do the simplest things, getting back and forth to here. I found that just helping other people, giving them rides, checking on your animals, maybe taking care of some of the things you can do that you don't have any control over, maybe makes you feel a little bit better. You know, you feel like you've got control of something.
(END VIDEO CLIP)
MARCIANO: You know, we came directly to the flooding from the tornadoes in Alabama. And obviously, we talked with a lot of people, the tornado victims, many of whom were in shelters. And there's a different kind of -- not mentality but emotion going on there. A couple of days after a devastating event like that, it's more of shock, that you're just happy to be alive. But, you know, a couple of weeks into a situation like this, which is what these people are in, you start to see the wear and tear emotionally. And that really starts to pull at your heartstrings and knowing especially guys that we're just starting this event for these people because the river's now cresting, but it took weeks to crest. And now it's going to take weeks to empty out and then the cleanup effort.
A lot of these folks have told me, you know what, I'm not going back there. I can't afford to. I've lost my home. I didn't have insurance. And they're just kind of have to pick up stakes and move somewhere else. And that right there especially for someone who lived there their entire life, it's truly heartbreaking. We'll probably see this echo down river as the waters continue to dump into the Gulf of Mexico -- guys.
ROMANS: Rob Marciano, a beautiful part of the country. A lot of great folks.
ALI VELSHI, CNN ANCHOR: Yes.
ROMANS: It's hard to watch this continue to roll down. Thanks, Rob.
VELSHI: Superheroes have really fallen off these days. Police in Petoskey, Michigan say they spotted a guy dressed as "Batman" -- check him out -- hanging on the side of the building. Officials say he wasn't bothering anyone. They don't believe he planned on breaking into any buildings, but he was carrying a police baton and pepper spray. He was charged with trespassing, weapons possession and needs a little bit of underarm antiperspirant. ROMANS: Courtesy of the Petoskey Department of Public Safety. So they take the mug shot and he, like, opens up his wings.
KIRAN CHETRY, CNN ANCHOR: To reveal his real weapon, B.O.
All right. Congratulations, Batman.
Well, as graduation day approaches, a high school in Syracuse is looking to school parents on etiquette for the ceremony.
Do you remember this?
VELSHI: Is there a problem?
CHETRY: Well, I remember them telling people it's really rude to cheer, whistle --
ROMANS: Yes.
CHETRY: -- or have like horns or bells for certain people then other kids' names get called and --
VELSHI: There's nothing.
CHETRY: Right.
ROMANS: The golf clap for some people and other parents are going crazy.
CHETRY: OK. So they say, you know what, just say we're going to be quiet.
ROMANS: But no one ever does it.
CHETRY: Save your applause until the end, which never happens. But anyway, so, the school says that parents of seniors must attend an etiquette class or they can't attend the ceremony. Parents understandably some were not happy about that.
(BEGIN VIDEO CLIP)
ANDREA MORENO, PARENT OF HS SENIOR: They're going to get their diploma. And now you find out you don't think we know how to behave ourselves well enough to have the privilege of attending their ceremony without etiquette training. I think that's just humiliating. It's demeaning, it's patronizing. Give it any adjective, I just don't think they should be subjected to that.
(END VIDEO CLIP)
CHETRY: Well, the Syracuse school district says the policy actually dates back to 2005 after there was a huge disruption at the previous year's graduation ceremony.
ROMANS: Some schools don't give you the actual diploma. They just give you the case --
VELSHI: Right.
ROMANS: -- to make sure that you behave and your family behaves until you're done. And then you get it. So that's the incentive that we're going to give you the actual diploma unless you all behave yourselves during the ceremonies.
VELSHI: All right. Big oil on Capitol Hill today facing grilling by Congress about the end of tax breaks and subsidies. A lot of people connecting the high price of gas to the subsidies.
ROMANS: Is it their fault? Is it there their fault?
VELSHI: Is this their fault and should they be getting a break at all? We're going to talk in fairly great detail about this today. We're going to talk to people who think the tax break should end and some who think that they should stay in place.
And that is our question of the day for you. Will cutting subsidies to big oil lower the price of gasoline?
We want to hear what you think. Send us an e-mail, tweet us, or tell us on Facebook. You can tweet us, by the way, at CNNAM, at KiranChetry.cnn, at Christine Romans or at Ali Velshi. We'll read some of your comments throughout the course of the morning.
(COMMERCIAL BREAK)
ROMANS: It's almost 24 minutes past the hour. "Minding Your Business" this morning.
The markets, well, they look like they'll rebound the day after a tough day on Wall Street. A drop in commodities and a big swing in currencies drive stocks down yesterday. The Dow closed down 130 points. The Nasdaq lost almost 27 points. The S&P 500 down 15.
Five senior oil executives will be grilled by Congress today. They're kind of -- they're going to be under fire for record profits and soaring gas prices. Many Democrats are demanding an end to their billions of dollars in tax breaks and subsidies.
Hedge fund billionaire Raj Rajaratnam, he has been found guilty of fraud and conspiracy. A big victory for federal prosecutors in one of the largest insider trading cases in decades. Rajaratnam facing nearly 20 years in prison.
American families are paying more for health insurance. A new industry report says for Americans who are insured through their jobs, the average cost for a family of four this year will be $19,393 for coverage. That's a 7.3 percent increase over last year.
Good news about your money. Americans have 12 percent more on average in their 401(k) accounts than they did a year ago. The average balance now $74,900. That's the highest since Fidelity began tracking these numbers back in 1998.
And if you want to dress like a royal or you really just want to stand out in any crowd, this hat can be yours. Princess Beatrice is auctioning off this Philip Treacy fascinator she wore to the royal wedding for charity. Treacy's hats can cost around $3,000. I suggest maybe you should try to put that money back in a retirement account.
AMERICAN MORNING is back right after a quick break.
(COMMERCIAL BREAK)
ROMANS: Welcome back to the Most News in the Morning. It's 28 minutes after the hour.
America's financial future may be at risk if our students can't compete on a global scale in math and science.
CHETRY: Yes. And this morning, education in America reports. Soledad O'Brien follows three students on a journey to expand their knowledge.
(BEGIN VIDEOTAPE)
STUDENTS: Two, one.
SOLEDAD O'BRIEN, CNN SPECIAL CORRESPONDENT (voice-over): This is a robotics competition that brings 50,000 high school students into stadiums across the country. The purpose is to inspire kids to take challenging math and science classes, to prepare them for the high tech jobs of the future. It's what American public schools often fail to do.
ARNE DUNCAN, EDUCATION SECRETARY: We've basically had a 19th century model of education that is not preparing enough young people to be successful in the 21st century global economy.
O'BRIEN: Among this year's competitors, Maria Castro, Bryan Whitehead (ph), Sean Patel.
UNIDENTIFIED FEMALE: I want to become a solar engineer and I want to go to Stanford University.
O'BRIEN: Junior Maria Castro is a student at the mostly Latino Carl Hayden High School in Phoenix, Arizona. The average family here makes less than $30,000 a year.
Guitar player Bryan Whitehead is from middle class Seymour, Tennessee.
(on camera): Are there classes that you are not able to take because they're not offered in the school that you'd like to take?
UNIDENTIFIED MALE: I guess any AP classes at all.
O'BRIEN (voice-over): Sophomore Sean Patel is from upper middle class Montgomery, New Jersey. The son of Indian immigrants, Sean is already taking AP classes, which leaves him little time for his favorite hobby -- dancing.
UNIDENTIFIED MALE: I'm taking Spanish IV, AP U.S. History I, AP Statistics, English and Chemistry.
O'BRIEN: Soledad O'Brien, CNN.
(END VIDEO CLIP)
ROMANS: And this programming note, Sunday night at 8:00 Eastern, Soledad's special education in America report, "Don't Fail Me." That's 8:00 p.m. Eastern right here on CNN. Very, very good stories in there. VELSHI: All right, top stories right now on CNN, two suspected terrorists under arrest in New York City. Authorities say the men plan to carry out an unspecified attack in the city. One law enforcement source characterized the suspects as home grown. The plot was said to be aspirational rather than operational or detailed.
Well, it's Osama Bin Laden in his own words. Details from his private journal indicate that he was still in control of al Qaeda and an active participant in every recent terror plot. Bin Laden was also interested in attacking smaller cities in the United States. He wanted al Qaeda operatives to take note of prominent American holidays.
A major disaster declared in 14 Mississippi counties as historic flood waters surge south this morning, Louisiana already bracing. It may open a floodway that hasn't been used in 1973. That move could wash out 3 million acres of land.
CHETRY: Reynolds Wolf has been following all this from the Extreme Weather Center for us this morning. Reynolds --
REYNOLDS WOLF, AMS METEOROLOGIST: Hi, guys. You know how we're used to seeing so much weather phenomenon strike quickly, say, for example, tornadoes. Well, this is something is a slow moving process that's going to affect so many people who live along the Mississippi River.
Right now, we're looking at numbers that we're going to see where we can expect some record flooding in as many places and we're looking at this really getting under way in some spots. South of Memphis like in Vicksburg on May 19th, which should be 14.5 feet above the normal stage, a record flood.
Also in places like Natchez even in Red River landing up to 17.5 feet above, in Baton Rouge 12.5 and New Orleans for now moderate flooding expected on May 23 with about 2.5.
Speaking of water, we're going to be seeing quite a more of it along just along the Mississippi River, but further back in the central plains. We have a chance of strong storms today with that possibly some flash flooding in parts of the central plains into South Texas.
Quick moving storms also a possibility in the eastern half of the Great Lakes and through Detroit, Cleveland, even as far south as Charleston, West Virginia. The two weather big makers going to be this is warm front that we have. It's cruising from west to east.
Also the one erupting across parts of the central plains, the back half of that bringing not only some moisture, but also some cold air. A touch of snowfall expected in places like Denver, Colorado.
Denver itself above the freezing point, but some of the areas in the front range you might have temperatures right below that point, 83 in Chicago, 91 in Tampa. Wrapping it up in New York with 74 is your expected high. Back to you guys.
CHETRY: All right, Reynolds Wolf for us. Thanks so much. There were some scary moments during an emergency landing in Kentucky.
This was the plane had 21 people on board, skidded off the runway in Louisville last night. No one was hurt. The airport says that the plane reported hydraulic problems during its flight from Atlanta.
ROMANS: And we're now hearing the 911 call from a hunter who found a woman nearly starved to death in the Nevada wilderness. She was saved last week after being stranded and alone for 49 days in her van when this happened.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE (via telephone): We found a lady that's been in her van for -- since March 19th. She's about dead, and her husband left on March 22nd and never came back. We were out here riding around. We came in from wild horse on four-wheeler. The roads are washed out. She's stuck in a ditch.
UNIDENTIFIED FEMALE (via telephone): This is dispatch again. We're sending a helicopter up that way, a medical helicopter.
(END VIDEO CLIP)
ROMANS: At one point, the 911 operator sounds incredulous saying, "I'm sorry, this has been in her since when?" She survived on trail mix, hard candy and water from a nearby stream until hunters spotted her.
Apparently, she had some fish oil pills as well. She took one a day. She's now been transferred to a hospital in her native Canada. Authorities are still searching for her husband who left the van as you've heard from that call on March 22nd so that he could find help.
CHETRY: Yes, it doesn't look good. I mean, part of the reason she survived is that she had that shelter, that van to go back to at night. Very scary stuff.
ROMANS: But taking a car trip to Nevada from Canada. They stocked up on snacks at a convenience store in Oregon and then this happens.
VELSHI: And there's video of them in that store and they couldn't find them. Apparently, they had GPS with them, but don't know what happened. That search for her husband continues.
All right, gas prices up again this morning a little bit. In fact, not a little bit, $0.02 is a big jump overnight. Again, $3.98 I think is where we are right now, hovering around $4. Oil company executives being called to Capitol Hill to face a grilling over the tax breaks and subsidies that the industry gets.
Up next Senator Robert Menendez and Jack Girard. Jack Girard is the president and CEO of the American Petroleum Institute. They're going to talk to us about why these subsidies should stay or go and what the effect might be on your gas prices or American jobs. All of that coming up next. It's 35 minutes after the 7:00 hour on the east coast. (COMMERCIAL BREAK)
ROMANS: Whenever gas prices start to go up, people start to grumble about the profits of the oil industry. You might get some answers today about those profits and what you're paying at the pump. CEOs from the five major oil companies will be grilled by members of Congress.
At issue, not just those prices, but the question should oil companies be getting billions of dollars a year in tax breaks and subsidies when they're looking at profits like this. Here's what we're talking about.
Huge profits in first quarter of the year from the six biggest oil companies, Exxon nearly 11 billion, look at BP, Shell, Chevron about 6 billion, Total about 4 billion and ConocoPhillips 3 billion and all that adds up to about 38 billion in just three months for big oil.
Now that has President Obama and some in Congress calling for an end to big oil tax breaks. The president mentioned this in his "State of the Union" address. There are nine tax breaks in all.
The biggest is something called the domestic manufacturing tax deduction. It's worth about $1.7 billion a year. It dates back to 2004. This is a tax break designed to keep factories and production in the U.S.
As a result, companies can deduct about 9 percent of the income that they get from domestic production here in the country. There's also something called the percentage depletion allowance. It will be a quiz, Kiran and Ali. It's worth about a billion dollars a year.
This one lets oil companies treat the oil that's in the ground as capital equipment. That means they can depreciate its value as it gets used up. Something else called the foreign tax credit. That's $850 million a year. It allows companies to deduct 100 percent of the royalties and the taxes they pay overseas.
And finally, something called intangible drilling costs. This is worth $780 million a year. This is deductions for things like salaries, fuel, repairs to drilling parts. There are a few other small breaks as well, but Democrats say when you add it all up, eliminating all of this could generate an extra $21 billion over the next 10 years for the government.
The industry likes to point out you, guys, they pay $85 million a day to the U.S. government. So it's a cash machine that's generating cash for the U.S. as well. So there you go.
VELSHI: OK, excellent.
CHETRY: There were two very vigorous sides to this argument. We're going to try to tackle that today. First, I'm speaking with Democratic Senator Robert Menendez of New Jersey. He sits on the Senate Finance Committee. He is spearheading the push to eliminate those subsidies. He joins us live from Washington this morning. Thanks for being with us this morning, Senator Menendez. Good to see you again.
SEN. ROBERT MENENDEZ (D), NEW JERSEY: Good to be with you.
CHETRY: So let's just explain for people as we saw with Christine, when we say subsidies, some of those are tax breaks that many businesses can get for things like the operating expenses, the infrastructure and the like. What do you think the oil industry gets beyond that that you think is the problem?
MENENDEZ: Well, look, first of all, the oil industry obviously should never have been in the manufacturing credit. To believe that extraction of oil from ground is a manufacturing process I think is stretching the imagination.
And on the foreign tax, what they do is instead of paying a royalty abroad, which they could not deduct here at home, they get countries to tax them instead of pay a royalty.
And then they take that tax deduction abroad that they have and apply it here at home and ultimately get a credit for that here so American taxpayers are subsidizing the production of foreign oil.
So just those two elements alone are the major elements of what we're talking about in repealing. I just simply don't think when we are seeing the projections for the big five oil companies to make about $125 billion in profits this year, that they need another 2 billion a year for the next 10 years --
CHETRY: But are you essentially -- I understand what you are saying, but are you essentially penalizing privates because historically we don't do that in America.
MENENDEZ: Well, it's not penalizing them at all. The question is do you honestly believe that the oil companies need these moneys for exploration. It seems to me that if we take the $2 billion away this year and every year for the next 10 years, this year they'd make $123 billion instead of 125 --
CHETRY: So here's their argument about that --
MENENDEZ: Let me answer your question. That's not what's driving exploration, exploration is being driven by the price of the barrel of oil in the marketplace. So therefore, they don't need these tax breaks for the purposes of ultimately producing oil.
CHETRY: OK. Well, they also say that they may more than their fair share. In fact, they're arguing, at the least the American Petroleum Institute is arguing that they pay much more than standard S&P companies. They pay an effective tax rate of over 41 percent, as Christine pointed out, equivalent to about $85 million a day. Is that accurate?
MENENDEZ: They have all types of different calculations with what their ultimate tax payment is. The reality is that oil companies in this country pay, compared to every other place in the world that they're operating in, the lowest tax rates and the lowest royalties. So they have a pretty good deal here in America. I think the American taxpayer doesn't have a good deal when they're paying $21 billion of their tax moneys to ultimately help oil companies that are making $125 billion in profits this year.
CHETRY: The other question, though, is about the other implications, oil company stocks driving the markets. The fact that, you know, these are in people's pensions. These are in people's 401(k)s. You know, a growing industry with high wages and good paying jobs. I mean, are you chancing that perhaps some of this will be impacted if indeed these subsidies are taken away?
MENENDEZ: Well, you know, last year, ConocoPhillips who says it's un- American -- which is pretty outrageous -- asked the average person at the pump whether they think if it's un-American that they should continue to in addition to $4 a gallon for oil.
Give $21 billion of their money to the oil companies, use nearly $4 billion to buy back stock, which increased stock prices. They have the right to do that. I'm all for them doing that, but they don't need our taxpayer moneys to do that.
CHETRY: All right. Well, I'm glad we got your perspective this morning. There are a lot of people who agree with you.
Senator Robert Menendez of New Jersey, member of the Senate Finance Committee. Thanks for being with us this morning.
MENENDEZ: Good to be with you.
VELSHI: And, as always there are various sides to every story. And even though profits are soaring for the oil company, our next guest says big oil desperately needs to retain those tax breaks and subsidies.
Jack Gerard is the president and CEO of the American Petroleum Institute, it's a national trade association that represents the oil companies. He joins us live from Washington this morning.
Jack, thanks for being with us.
JACK GERARD, PRESIDENT AND CEO, AMERICAN PETROLEUM INSTITUTE: Thank you, Ali.
Let's start -- this is obviously a complex issue and let's start with the basics. You have companies, member companies that drill for oil in a hole in west Texas, probably the simplest way to drill for oil. Then you have those who drill offshore and in complicated parts of the world, in places that are dangerous and in the oil sands in Canada.
At what point across the board is it profitable to drill for oil? What price per barrel is the minimum these companies need to be profitable?
GERARD: Well, Ali, it all depends on the particular resource you're talking about and it varies clear across the globe and it varies in different parts of the United States, as well. In some parts you can produce it less expensively than you can in others. The key to that, though, as we look to the future -- and this goes back to the tax discussion.
VELSHI: Hold on. Jack, we're not going to get to the future if we don't get to the present. What cost -- what price -- because everywhere I go and every oil facility I've ever been to, somebody can tell me we can make money at 20 bucks a barrel, or we can make money at 50 bucks a barrel.
I got a number in my head but you know more than I do so tell me what the number is.
GERARD: Well, Ali, it all depends on the resource.
VELSHI: Right. Give me an average. Tell me what it costs when you're drilling into plain ground.
GERARD: It varies. In some areas you can do it at $60 a barrel, in other areas it can cost you $150 a barrel.
VELSHI: Where would it cost $150 to get it oil out of the ground?
GERARD: Well, obviously the deeper water, in more complicated geology, et cetera. The key to it though, Ali, the point I was trying to make is the technology improvements. Today we can produce it less expensively than we could just 10 years ago.
VELSHI: Right.
GERARD: Because we take those earnings and we reinvest it into developing new technologies to give it to shareholders, as was pointed out earlier. Forty-one percent of all oil companies are owned by pension plans and 401(k) plans.
VELSHI: Right. And that's true. That's true. It does -- and it drives the market, but there are some people say why are we taking taxpayers' money and charging people more at the pump so that they can get it back in their 401(k) or their IRA? So that's not really a good argument for -- I mean, the fact that you guys pay dividends doesn't mean that people should pay taxes so that you guys can pay higher dividends.
GERARD: Well let's talk about those tax provisions, Ali, and the good senator tried to describe them there. The manufacturing deduction he talks about is business-wide, GE gets it, Google gets it, Microsoft gets it.
VELSHI: Right.
GERARD: The entire business community gets it. And the purpose for its enactment originally was to create jobs in the United States and to retain jobs in the United States.
VELSHI: Right. GERARD: What the senator's proposal does is discriminates against five companies. He's essentially said, well, this is good for business generally, but we're going to discriminate against five oil companies and deny them that tax break because we want to punish them.
VELSHI: Tell me what the net effect would be --
GERARD: That's the long and short of what the proposal does.
VELSHI: If the senator got his way and some of these subsidies were taken away, what would the net effect be on gas prices and on jobs in America, according to your member companies?
GERARD: Well, when you look at the cost of production around the world, our companies operate in a global environment. So every day they make decisions, long-term decisions as to where they're going to invest that resource. If you increase the cost in the United States, you're discouraging investment in the United States to produce America's oil and natural gas by Americans for Americans. So it's very important that we try to remain as competitive as we can.
VELSHI: Right. Your member companies all get more of their revenue overseas than they do in the United States, or they get more of their revenue here in the United States?
GERARD: Well, it varies from company to company, Ali. Obviously they're structured a little differently. Some of them are solely U.S. based. Others operate in a global environment.
VELSHI: It is a complicated issue, Jack. Thanks for joining us to give us your view on it and the view of the companies that you represent.
Jack Gerard is the president and CEO of the American Petroleum Institute.
GERARD: Thank you, Ali. Thanks for having me.
VELSHI: We want to know -- my pleasure.
We want to know what you are thinking out there. Will cutting subsidies to big oil lower the price of gasoline in your opinion? E- mail us at CNN.com/am. Give us a Tweet @CNNam or tell us on Facebook. Facebook.com/American Morning. We're going to read through some of your comments later on in the show.
It is 49 minutes after the hour.
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ROMANS: A lot going on this morning. Here's what you need to know to start your day.
Osama bin Laden's handwritten journal seized during last week's raid in Pakistan, it shows that he was constantly planning for new terror attacks against the United States. Computer files also reveal he had a role in every recent major al Qaeda threat.
Parts of Mississippi, a disaster area. Historic floods rolling south toward New Orleans and flooding hundreds of homes this morning.
Reverend Billy Graham is being treated for pneumonia in a North Carolina hospital. The 92-year-old evangelist said to be in stable condition now.
Basketball losing one of its greatest characters of all times. Robert "Tractor" Traylor was found dead in his apartment in Puerto Rico. He was just 34-years-old. It's presumed Traylor died of a heart attack. He had a heart operation back in 2005.
And Jenny Craig is the biggest loser. Consumer Reports rates Jenny as the top diet out there, beating Atkins, Slim Fast and Weight Watchers.
You're caught up on the day's headlines. AMERICAN MORNING is back right after the break.
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VELSHI: Looking beautiful. New York City, right outside of our studio. Sixty-one degrees and cloudy right now. It's going to be partly cloudy and 74 degrees later on today. It's been beautiful this week. Spring's actually here.
ROMANS: We deserve it.
CHETRY: Finally, I know.
Well, they may like his hit movies but there are some New Yorkers who are not happy with actor Will Smith's gigantic trailer.
ROMANS: Whoa. I hadn't seen the picture yet. Oh, you're kidding me. It's two stories.
CHETRY: There it is. Yes, they say it's taken over their neighborhood. Not happy about it. Smith is filming "Men in Black 3." The "New York Post" dubbed the trailer the monster that ate Soho. The city actually ordered them to move it. Columbia Pictures says it regrets any inconvenience. You know, and this is the town where a lot of movies are filmed and people are pretty accommodating. I mean, on any given time you can see streets closed down, you see the big craft (ph) services truck up, but that really takes the cake.
ROMANS: That's bigger than two New York City apartments, maybe three.
The oracle of Omaha making a trip to Scranton. NBC says billionaire investor Warren Buffet will guest star on the season finale of "The Office." He's going to be a potential replacement as office manager taking over for Steve Carrell's character. That episode airs May 19th. I can't wait.
CHETRY: From Berkshire Hathaway to Dunder Mifflin.
ROMANS: I can't wait.
CHETRY: It has the same ring to it.
ROMANS: I can't wait.
VELSHI: We have got top stories for you right after this break. Stay with us. It's 55 minutes after the hour.
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