For example, President Obama has been attacking the oil and gas industry and arguing that the federal government is subsidizing the industry in an amount of $4 billion per year. Actually the subsidies are tax advantages (some might call them tax loopholes) rather than outright cash subsidies. (Under this way of thinking, your mortgage interest deduction would be considered a subsidy.) $4 billion sounds like a lot to the average American who is making $40,584 per year and is now paying over $4 per gallon for gasoline. Heck yes, stick it to those oil companies!
How about a little context? The Department of Energy announced last week that it has given $21 billion in subsidies to the alternative energy industry in the form of loan guarantees. That is five times the amount of subsidies that oil and gas is receiving annually! Since the stimulus bill of 2009, direct subsidies to alternative energy producers have increased dramatically but there does not seem to be any central source for reporting all the subsidies according to this report from The Science and Environmental Policy Project. These include direct tax subsidies in the form of a $7,500 tax credit for the purchase of electric cars (budgeted at $1.5 billion, $2.4 billion in grants to establish 30 electric vehicle battery projects and $2.6 billion in loans to build electric car factories according to The Energy Collective.
What are these tax advantages (loopholes)? The Science and Environmental Policy Project explains,
I might add that the depletion allowance is similar to a depreciation allowance. The theory is that when you invest your capital to find oil or gas that you should have a way to write off that investment as the resource is "depleted". This is similar to when you invest in a machine and, over time, it depreciates. In either case, the policy behind the allowance is to provide the investor a way to ratably write off the asset over time rather than waiting to the end. In this way it frees up capital to the investor that could then be used as an incentive to make further investments (drilling for more oil and gas etc). Of course, why would we want anyone to have an incentive to find more oil and gas right here in the good old United States of America?The tax subsidies, "loopholes," to oil and gas companies are largely in three categories: 1) oil depletion allowance, 2) expensing indirect drilling costs, and 3) a tax credit for taxes paid to foreign nations during foreign operations (foreign tax credit). The first category is a favorite among independent producers (and similar depletion allowances are available for all mineral extraction, timber, etc.). The independent producers can pass the depletion on to individual investors. Since the mid-1970s, the allowance has not been permitted for integrated oil companies. The smaller producers will bitterly fight for this "loophole" and the larger producers will be blamed.
The second category permits writing off indirect drilling costs in the year incurred rather than capitalizing them and writing them off over several years. Closing this "loophole" would only change timing of taking the expense, not total amounts of the so-called tax subsidy. The third category is available for all international companies. Closing this "loophole" would discriminate against oil and gas companies in favor of other international companies such as General Electric.
$4 billion for oil and gas subsidies does not sound quite as bad when viewed in context does it?
An assist on this post to PowerLine who sums it up this way,
It is ludicrous for the administration to complain about "subsidies" to the oil companies when ExxonMobil pays more in taxes than it earns in profits, and when the "green" energies favored by the Obama administration actually are subsidized, and in fact would not exist without government favoritism.UPDATE: Hot Air provides further context on these "oil subsidies". Hot Air explains that oil and gas does not get anything special that any other extraction industry is getting.
The end of the "subsidies" was aimed at the only the five largest oil companies. The former President of Shell Oil and founder of "Citizens for Affordable Energy" said that America can produce 3 million barrels more per day if the federal government would grant the drilling permits. The royalties paid to the treasury would be $20 billion per year and 3 million new jobs would be created. Yet, the Senate leaders want to focus on ending "subsidies".
ReplyDeleteTo Anonymous,
ReplyDeleteYou are so right and it makes this move to take away these "subsidies" even the more outrageous. I thought one of the central roles of Government was supposed to be to prevent discrimination and provide a level playing field? How is it justified to pick out 5 companies in an entire industry and penalize them because they have been successful?
If it is determined that these tax benefits are unnecessary then it should be done across the board to all taxpayers. If you want to get rid of the depletion allowance then it should be done for all extraction industries-gold, copper, coal etc-that benefit from it.
Why don't we spend more time on trying to make more businesses and people successful than trying to tear down those that are successful. Atlas Shrugged again. Where is John Galt?