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The U.S. Chamber of Commerce on Monday called a proposal to repeal tax breaks for five major oil and gas companies "misguided" and said that such a move could result in higher energy prices. The Chamber of Commerce's objection helps to solidify Senate Republican opposition to the bill.

In a letter sent to members of the U.S. Senate, the Chamber of Commerce, a trade group representing U.S. businesses, said legislation proposed by Sen. Robert Menendez (D., N.J.) unfairly targeted a single industry and could be counterproductive.

"Levying new taxes and fees on America's oil and gas industry would increase U.S. dependence on foreign oil, increase costs to consumers, jeopardize U.S. jobs and erode economic competitiveness," wrote R. Bruce Josten, the Chamber's executive vice president of government affairs.

The Senate is expected to take up the oil-tax bill for vote on Wednesday. Introduced last week by Menendez and other Senate Democrats, the bill would eliminate about $2 billion a year in tax breaks for five major oil companies, including Royal Dutch Shell PLC's (RDSA) Shell Oil Co., Chevron Corp. (CVX), Exxon Mobil Corp. (XOM) and use the revenue to pay down the federal deficit.

The bill would repeal a deduction for domestic manufacturing activity and tighten the way oil companies get credit for paying foreign taxes, among other provisions. The bill is not expected to pass the Senate due to opposition by Republicans and conservative Democrats, but could play a role in shaping the debate on how to reduce the size of the U.S. budget deficit.

The Chamber objected to repealing the manufacturing deduction, saying the change "could discourage energy investment, result in lost jobs and ultimately decrease supply and increase energy costs for businesses relying on oil and gas."

However, other agencies have estimated that the provisions would be unlikely to affect the cost of U.S. gasoline. "The price of oil is determined on world markets and tends not to be sensitive to small cost variations experienced in regional production areas," the Congressional Research Service said last week in a memorandum to Senate Majority Leader Harry Reid (D., Nev.)

The bill is not expected to pass the Senate, but could play a role in shaping the debate on how to reduce the size of the U.S. budget deficit.

-By Kristina Peterson, Dow Jones Newswires; 202-862-9244;

Kristina.peterson@dowjones.com

--Tennille Tracy and Siobhan Hughes contributed to this article.

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