President Obama: Eliminate Oil Subsidies (That Don’t Really Exist)

By April 26, 2011Energy, Taxation

President Obama has made criticisms of the U.S. energy industry a feature in his recent public appearances, especially the campaign fundraisers, and today he elevated the political misdirection with a “Letter from the President to Congressional Leadership Regarding Oil Subsidies.”

While there is no silver bullet to address rising gas prices in the short term, there are steps we can take to ensure the American people don’t fall victim to skyrocketing gas prices over the long term.   One of those steps is to eliminate unwarranted tax breaks to the oil and gas industry and invest that revenue into clean energy to reduce our dependence on foreign oil. Our outdated tax laws currently provide the oil and gas industry more than $4 billion per year in these subsidies, even though oil prices are high and the industry is projected to report outsized profits this quarter.

We must raise taxes on domestic oil and gas production in order to reduce our dependence on foreign oil! Is that really a serious argument?

No. No it’s not. Just as the President’s repeated attacks about “subsidies” and “tax breaks” for Big Oil are not serious arguments.

The American Petroleum Institute explains the realities of energy taxation in the United States in this fact sheet. Good to actually see some actual facts in this important policy debate.

The U.S. oil and natural gas industry does not receive “subsidized” payments from the government to produce oil and gas. However, there are many provisions in the tax code that allow companies to recover their costs. The oil and gas industry are eligible for these deductions, which are similar to, if not the same as, deductions available to many other industries.

Tax deductions should in no way be confused with subsidies. A fundamental pillar of the U.S. income tax system is that businesses are taxed only on net income. This means that there needs to be some practical and fair method for businesses to recover costs. The policies underlying cost recovery provisions in the tax code legitimately utilized by the oil and natural gas industry are no different than those for any other industry, and are necessary to insure that our industry is treated no differently than any other.

In fact, deductions allowed for the U.S. oil and natural gas industry are often more restrictive when compared with other industries. For example, Section 199 (the manufacturing tax deduction), which some in Congress have proposed eliminating just for the oil and gas industry, is already one-third lower on a percentage basis than for other industries.

API also reports: “U.S. oil and natural gas companies pay considerably more of its profits in taxes than the average manufacturing company. In fact, the industry’s 2009 income tax expenses averaged 48.4 percent, compared to 28.1 percent for the other S&P Industrial companies.”

We’ll give the President credit for at least fairly describing in his letter the economic factors that have caused the rise gasoline prices: “increased global demand … compounded by unrest and supply disruptions in the Middle East.”  In acknowledging market forces, President Obama also eschewed the drum pounding against “speculators” and “market manipulation.” It seems that Attorney General Eric Holder has been assigned that particular populist line of attack.

The President has acknowledged the realities of supply and demand in determining gas prices, yet he has decided that the solution is higher taxes and attacks against domestic oil and gas production. The real answer lies encouraging market response by signaling the United States will enact policies that increase domestic energy production. We need less industrial policy, more markets.

Join the discussion 3 Comments

  • Carter Wood says:

    Do you think that “Are you kidding me?” and attacking the source serve as refutation? Interesting.

  • Bernadette Preszler says:

    Mr Carter Wood, Your words are concise, articulate and very much ‘spin’.Just as in the presentation of statistics, numbers/words can say whatever the writer endorses! Your explanation of the difference between ‘subsidies’ and ‘deductions’ is another example of the loss of integrity of word meaning! They both reflect loopholes, which screams DECEIT.
    I do agree in the concept of businesses needing to adjust their expenses with SPECIFIC allowances presented; however when there becomes an imbalance of costs vs PROFITS, in which profits become OUTRAGEOUS,this would reflect some adjustment to the ‘formula’! The oil industry is NOT COMPARABLE with the ‘average manufacturing company’.This is comparing apples to oranges!
    Your capability of writing words in a ‘respectful manner’ also reflects your perception of academic intelligence instead of emotional intelligence.Dear sir, please take a furlough from writing and plan a walk for at least one month in the shoes of the individuals who PAY THEIR weekly wages to support your ‘manufacturing company’. The Supreme Court really has done you no favor in presenting the audacious cover that businesses/corporations are people too!Here is another definition (mine) of the word meaning of oil subsidies’; the replacement word is ‘corporate welfare’. Instead of ‘free enterprise’ it now has become ‘bought enterprise’. In summary, the spokespeople for big corporations (not average manufacturing businesses) seem to have made a career of presenting ‘tainted truth’ to the citizens of U.S.A. What a shame.

  • allofus1952 says:

    please are you kidding me?the american petroleum institute is your way of presenting the true facts,that’s like going into a prison and asking how many are innocent-of course they all are.the oil industry has set records for net profit, that’s net profit (349 million + for the year)while most people are struggling to put gas in their car.Shame on you and the republicans for crying for the rich and the oil companies

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