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The Myth Of Big Oil Subsidies

For the record, I am fully aware that I am about to step off into some deep waters by writing about this issue. The debate in Washington over reducing the deficit, lowering our nation’s debt, etc., has turned into a three-ring circus and the subsidies received by oil companies seem to be standing center stage, at least for the moment. That’s fine, let’s shine the spotlight on them just a little more and try to understand what is really going on. To do that, we have to be honest about what these subsidies really are and that is something that President Obama and the Democrats are not being. What they are calling subsidies are nothing of the kind. Contrary to the rhetoric being used in this debate, the federal government is not writing a check to Exon, Shell, or any other oil company. What is happening is the tax breaks the oil companies receive through the convoluted maze of rules and regulations that is the American tax code. Just so you know, these tax breaks are not specific to the oil companies, as American Thinker has already pointed out, via Conservatives on Fire.

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Domestic manufacturing tax deduction — $1.7 B. This is a tax deduction given to every manufacturer in the US. Per CNN, it was “designed to keep factories in the United States.” If that deduction were eliminated for oil companies only, it would mean singling out oil companies from all other manufacturers.

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Percentage depletion allowance — $1 B. Any industry can write down a portion of the cost of its capital equipment as part of the cost of doing business. Right now, oil in the ground is treated as capital equipment. Again, this “subsidy” amounts to how the cost of doing business is defined. All companies get it, not just oil companies.

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Foreign tax credit — $850 million. Companies get credit for taxes they pay to other countries. All companies get this “subsidy,” not just oil companies. Should a company pay tax on tax? Should only oil companies pay tax on tax?

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Intangible drilling costs — $780 million. According to CNN, “[a]ll industries get to write off the costs of doing business, but they must take it over the life of an investment. The oil industry gets to take the drilling credit in the first year.” Among these four tax “breaks,” this smallest one was the only one that treated oil companies differently.

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Let’s be very clear about what is happening in the debate over oil company subsidies. As I have already noted, they are not actually subsidies, but tax breaks that all companies are allowed to take, to a certain degree. One may argue that the tax breaks should be on theOil Subsidies table when discussing budget cuts, etc., but one can not make a successful argument that they should be removed only for the oil companies. That argument simply does not exist and to pretend it does is nothing more than a case of political opportunism, pure and unadulterated, and the Republicans in Congress are allowing it to happen, with nary a word.

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Presently in Washington, D.C., the executives of the five largest oil companies are undergoing a question and answer session in Congress. President Obama and the Democrats have singled them out as a high profile target and are doing a pretty fair job of portraying them as evil and greedy. They are pointing to the ever-rising price of gasoline and diesel as proof of their argument, but once again, that argument is completely false. They are scoring political points and it seems they even have Speaker John Boehner on the band wagon. As much as I would like to support the Speaker, he spoke out of turn when he said the subsidies for oil companies needed to be on the table. The so-called subsidies do not exist and to single the oil companies out for punishment by removing the tax breaks every company receives is unfair and smells like the political opportunism I mentioned earlier. Speaker Boehner and the rest of the Republicans need to change the dialog and let the American people know what the issue at hand really is, instead of allowing President Obama to frame the discussion and go along for the ride.

About LD Jackson

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LD Jackson has written 2053 posts in this blog.

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Founder and author of the political and news commentary blog Political Realities. I have always loved to write, but never have I felt my writing was more important than in this present day. If I have changed one mind or impressed one American about the direction our country is headed, then I will consider my endeavors a success. I take the tag line on this blog very seriously. Above all else, in search of the truth.

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  • You’re right, LD, this is just political posturing. Once again the budget debate is being mucked up with nickel and dime issues. Disappointing to see Boehner become part of it.

    • Yes, the debate over these non-existent subsidies is clouding the real issues at hand.

  • Good job in exposing the false elements that form the arguments of those attacking the oil industry.

    However, Speaker Boehner should not be made part of this attack at all. It is unfair to issue a modified transcript using out of context statements of what Boehner meant in regards to the oil industry tax breaks just to fit them into a narrative. The Speaker has consistently explained that any tax credits, for any industry – which includes oil – are to be on the table if they are part of a broader discussion of lowering tax rates. I emphasize “any industry” and being inclusive of “lowering tax rates”. There is no way that can be construed as joining the Democrat’s side in attacking the individual tax credits of the oil industry separately from the general concept of lowering tax rates or reforming the tax code in a way that will consider simplifying such code as part of the reform.

    Otherwise, the premises of the article are correct.

    • Thanks for your comment, John. I honestly did not mean to be unfair to Speaker Boehner, but I stand by my assertion that he is not doing enough to counter the claims that are being put forth by the President and the rest of the Democrats. It is so disappointing to see us unable to frame the debate the way it should be framed and I place at least part of the blame for that at the feet of the Speaker and the rest of the Republicans.

  • Democrats can’t win on the facts and thus must try and divert peoples’ attention. The oil guys in the Senate hearings weren’t taking anything of it, rightly so.

    Time to drill!

    • I haven’t had the time to watch the Senate hearings, but I am glad the oil companies aren’t taking this lying down.

      • They’re not but the Dem steam machine is already rolling. They want to take away $2 billion in tax breaks and use it to pay down the deficit.

  • Sorry for coming to the party late but I’ve been under the weather. First, thank you for the link.
    What is behind this attack on oil cpmpanies, of course, is the current high price of gasoline. Obama and the Democrats need someone to take the blame other than themselves. We know that government policy has debased the dollar and because oil is priced in dollars the price of oil goes up and that affects gasoline prices directly. However, Country Thinker in an article the other day
    on why gas prices are much higher today than they were in2007 at the same oil price. Good question. CT wondered if there was something happening with US refineries. I did a bit of Googling and found there is today less gasoline being imported and more being exported. Although that might equate to tightness in supply, I doubt that it has a significant effect on price. Obama and the Democrats wold love to blame collusion by the oil companies for the higher relative price we have today. Maybe but i doubt it. There is something else that may be adding to gas prices today. Ethanol. the ethanol content in gasoline is significantly higher than in 2007. Because corn is a commodity, its price has gone up with the weakening dollar, also. I think if the Republicans would look into the price effect of ethanol blending, it might give them more ammunition against Obama’s policies. So far I haven’t been able to find up to date prices on ethanol.

    • Glad you are feeling better, Jim. There are a lot of things in play in 2011 that are contributing to the high price of gasoline. I have no doubt that the Democrats will continue to blame the oil companies and people who do not do the research to learn what is going on will find them an easy target as well. I work with a man that is absolutely convinced that the only reason gasoline is so high is the policies of the oil companies themselves. He holds them totally responsible and nothing I say is going to make a difference.

      To be honest, I am afraid this issue will do nothing but help the Democrats. As is usually the case, they are framing the debate and pushing it in the direction they want it to go and nothing we say seems to make a difference. That troubles me greatly.

  • Let’s see….Obama has demonized how many capitalistic ventures since he took office in 2009? I’m sure that others here can come up with the same list that I can.

    Good point about the convoluted tax code, which does offer various breaks to “the big boys.” On the other hand, big businesses do employ scads of people and further the free enterprise system. Furthermore, in addition to those tax breaks for businesses, businesses — small, medium, and large — have to put up with all kinds of governmental regulations. I often refer to those regulations as “the tedium factor.” As a single proprietorship, I do know how much tedium the government opposes upon me and can’t even begin to fathom how much tedium the government imposes upon large entrepreneurs.

    • Thanks, AOW. Really, there is no good reason for our tax code to be so complicated, other than the power it gives the federal government. That is the crux of it, no matter what anyone says. Simplifying the tax code would drastically reduce the power and sway Washington holds over corporations. Can you imagine how much better the business climate would be if that were to happen?

  • Another thought….Right now, the average American is angry about the price at the pump. The Obama administration is going to use that anger to get through more government presence in our lives. Watch for it.

  • In all reality, does the government have a role in subsidizing, or otherwise supporting any industry or company?

  • Good post Larry! There is no doubt that Obama’s ficals policies are at least partly to blame for the rising price of gas so he is looking to deflect the blame by attacking the oil industry. He knows that this will play well with his base, but the fact is that this is nothing but a flanking maneuver

    • I have said time after time that one of the weaknesses of the Republican Party is to allow the Democrats and the media to frame this or any other debate in their own terms. Doing so concedes the high ground that our positions hold naturally and almost certainly dooms those positions to failure.

  • LD, you are right to be a little impatient – I feel the same way often – about the inability by the Republicans to frame the debate about oil prices the way it should. But your weight on this issue should fall on the media in higher proportion than the Republicans. The media headlines every accusation by the Democrats while ignoring many a good argument that the Republicans have made. It is difficult to frame the debate when the other side has the full cooperation of the media.

  • Anyone notice that Obama is now trying to make it easier to get more offshore drilling operations going to ease gas prices?

    I wonder how much coverage this is going to get? It will likely be swept under the rug.

    • Yes, I did notice that. He is working to make it appear that he is doing everything he can to ramp up oil production, but his record says otherwise. The article in the Washington Post gives some examples of just how much the Obama administration has been dragging their feet when it comes to allowing actual drilling.

  • Smear and demonize is the cornerstone of leftist politics

  • Mike

    I agree with most of what you wrote Larry but can someone explain to me how oil in the ground is capital equipment meriting a tax deduction? Oil isn’t “equipment” it’s the product these guys sell!! The drilling equipment is “equipment”? Oil? I don’t think so.

    • I can’t say that I understand why oil in the ground would be considered capital equipment, but I don’t fault the oil companies for this as much as I fault our tax code.

  • It is definitely political posturing LD. I say that if the Democrats want the oil companies to lose their tax breaks so should every other company in America. I’m not really for that but fair is fair. It is disappointing to see Boehner join in with the Democrats demagoguery.

  • Howard Roark

    LD, Your artcle, The Big Oil Myth points out something that has been chapping my hide for a long time. That big oil recieves no government subsidies and that the Republicans have been so inept as to allow this myth to go on unchallenged.
    I recently spoke to my Congressman, Chip Cravaack, about this very same thing and he agreed with me that the oil companies recieve no subsidies and that the Republicans should not allow the Democrats to dictate the terms of the discussion like they are…and that the big oil subsidy lie should be pointed out. The next time that I heard Chip speak (at a townhall meeting) he fielded a question about these big oil subsidies and he went on to talk about how gas prices would rise if we took away these oil subsidies. I’ve got alot of respect for my Congressman…but c’mon, this is just another example of Republican ineptness.
    Anyways, it is refreshing to see that at least one other person gets it. Keep up the good work.

  • Howard Roark

    Please nptify me of follw-up comments via E-mail.

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