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.
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.
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.
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?
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.
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 the 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.
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.