A fews facts about those outrageous oil and natural gas ‘subsidies,’ please

Harry and Barry feel our pain at the pump and would like to twist the knife in the wound.

For some inexplicable and irrational reason — perhaps, “reason” is the wrong word — the president and the Senate majority leader have pressed to take away “subsidies” from those greedy, rich American oil companies owned by U.S. citizens whose 401(k) programs invest in profitable oil companies in hopes of someday being able to retire. They would use the money to then subsidize their beloved wind and solar projects. Luckily, a bill proposing this failed in the Senate.

Obama calls for end to oil and gas subsidies.

But, as David Kreutzer at the Heritage Foundation points out, that half of that “subsidy” is actually a tax break afforded all manufacturing companies. Except. Most manufacturers are allowed to deduct 9 percent of revenues before calculating their tax bills. Not so oil and natural gas companies. They may deduct only 6 percent. Instead of being singled out for a tax break, they are singled out for a lesser tax break. Harry and Barry would further expand this industrial discrimination.

Kreutzer observes:

“Let’s review that. The oil and gas industry gets a deduction that is only two-thirds as generous as for all other manufacturers (wind turbine and solar panel manufacturers and even The New York Times, for example), yet the deduction is called a subsidy to oil and gas. The President’s proposal does not eliminate the deduction for any other industry.”

As for Harry’s claim that legislation to remove this “subsidy” and give a subsidy to green energy companies would not affect the price of gasoline, consider that the Congressional Budget Office said the tax may decrease exploration, development, and production, thus increasing prices and dependence on foreign oil. It also speculated — in a sop to those kneeling at the altar of green energy — that the subpar tax breaks have kept oil and gas prices artificially low (Read: They need to be higher.) and hidden the external costs associated with environmental costs and energy dependence.

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33 comments on “A fews facts about those outrageous oil and natural gas ‘subsidies,’ please

  1. dave444 says:

    The end of Harry and Barry would be far more satisfying.

  2. Vernon Clayson says:

    Harry Reid, a long time politician, ostensibly a Democrat but in his heart and soul a Marxist cum Socialist/Communist, prevaricates with ease. All these years of hiding his inner Marxist came to light when an individual, Barack Obama, unknown and largely unsung, brought him to the light. How else to explain how a seasoned pol came under the thrall of a novice pol, who, from all appearances, was a common street hustler. My words will not shame Harry Reid, he has no shame, his only purpose is to gain pelf and power, as much as he possibly can for himself, and as much as he can for his kin and ilk. Someone should tell him the oil companies profit because they provide goods and services the world needs, oil is a huge enterprise that literally moves and heats the world’s population. This despite governments, at every level, control its production and distribution, and not coincidentally, gets a major share in taxes and fees. Not one drop of oil and its byproducts goes anywhere without a government control, law, rule or regulation, and god only knows what accrues to the pockets of venal individual politicians, a caveat – is there any other kind?

  3. Venal:capable of being bought or obtained for money or other valuable consideration;especially:open to corrupt influence and especially bribery

    How fitting, Vernon. First Scalia and now you.

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  4. Steve says:

    Green worshipers all talk about externalities.
    Vernon writes “Someone should tell him the oil companies profit because they provide goods and services the world needs” I say these provide externalities no one seems to see.
    Greens love to shout how fossil fuel externalities are killing the planet, never mind the planet is going to be just fine its actually humans that have potential risk.
    Every bad external effect is offset by a positive one.
    Try to get that bunch greenies to see this is like pulling weeds in the desert.

  5. Anonymous says:

    For conservatives, everybody sure talks like a bunch of liberals. I note that “subsidy” is in quotes. Hopefully, you will agree that giving tax breaks to selected individuals or companies amounts to a subsidy. Both are money in the bank. There is an exception: If the oil industry already pays high taxes, then the tax deductions are not subsidies, but until you can show that oil companies pay the same tax rate as my business, I call them subsidies.
    Good conservatives don’t like subsidies or complex tax laws, period. Subsidies are just a small step from Socialism. While I agree that Obama is singling out oil companies, let us complain about that and scream for simplification of the tax system for everybody – but let’s not try to justify a system of taxes and tax breaks that is so complicated that nobody knows how much the other guy is really paying.

  6. Rincon says:

    Anonymous here. Sorry, I forgot to fill in the information. Call me Rincon

  7. You are correct, Rincon. I was merely trying to correct the liberal spin not advocate for favors for anyone.

    Sent from my iPhone

  8. Vernon Clayson says:

    I don’t really understand what Rincon is saying, he seems to be lumping subsidies and taxes together. He appears to be in business so is he saying the deductions he gets in conducting his business, is a subsidy? If his equipment, whatever it is, machinery, a copier, whatever, wears out and has to be replaced it probably is a deduction, and if I read him correctly, it’s a subsidy? I’m hoping he didn’t get a federal or state grant to start his business, a business loan is another matter, if he needed one a bank must have considered him a good risk. This doesn’t appear to be so with these so-called green energy programs, the government, with the connivance of members of Congress, just sticks dollars out there for the grabbing, good friends instead of good credit does the trick. Does anyone suppose the principals of the failed Solyndra project now have bad credit ratings, does the member/members of Congress that funneled the dollars to them now have bad credit ratings? I pay taxes as an individual, are whatever deductions I qualify for actually subsidies, I think not. Maybe Rincon can clarify this for me??

  9. Steve says:

    Vernon, is home mortgage interest deduction a subsidy? How about this, is the standard deduction itself a subsidy?

    Rincon clarifies with “Good conservatives don’t like subsidies or complex tax laws, period.”

    Heck there are a buch of independents that would be considered conservatives based on that statement. There might even be a Liberal Democrat or two that would agree with it.

  10. Athos says:

    Repeal the 16th amendment. Replace with a consumption based tax. Stop punishing the industrious.

    Give me ONE candidate that runs on that platform, and I’ll vote for him.

    We really don’t need a ruling class, especially since people like Harry THE CROOK Reid, is an incompetent member.

  11. They use the tax code to pick and choose winners and losers. How much does GE pay in taxes? Where is bill deny their tax breaks.

  12. Steve says:

    Ron Paul.

  13. Athos says:

    Steve, if we were living 100 years ago, Ron Paul would be a shoe-in. When I read his platform, it dovetails very nicely with mine (fewer exceptions than the other candidates). But he comes across as Elmer Fudd when put in front of the media elite, and is quickly dismissed by a majority of conservatives.

    It’s a shame, really. I guess our current society is star power driven, isn’t it?

  14. Athos says:

    Warning!! Totally off topic!!

    Has anyone else seen any of this?

    The Sheriff starts speaking around the 18 minute mark, and the real evidence begins around the 41 minute mark.

    These are real people, who are marginalized (to put it lightly!) by any and all that hear the word “Birthers”.

    Hmmm.

  15. Amusing.

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  16. Athos says:

    Wonder why this is such a hot button subject?

  17. Vernon Clayson says:

    Amusing is correct, Mr. Mitchell, the sheriff is a powerful politician in Maricopa County, it’s not like the old movies where he is the law west of the Pecos or something. His treatment of inmates is amusing, his cantankerous speeches are amusing, and I hope he is reelected, but the feds can and will continue to ignore him. I understand his reasoning, he’s not so much a “birther” as he is a man attempting to answer questions many of us have, the prime example is where are the authentic official records of Obama’s background? A bigger question for the sheriff is why didn’t he question as witnesses that had the responsibility for vetting Obama? He could have started with John McCain who failed to question Obama’s qualifications while sitting still for his own to be questioned.

  18. Vetting, Vernon? Dinesh D’souza points out that Obama claims to have lived with a girlfriend in his college days for some length of time. Why has no one ever found this woman?

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  19. Rincon says:

    In reply to Vernon Clayson and Steve:

    Thank you for giving me this opportunity to explain myself.

    I agree that tax deductions are necessary, but only if there is a level playing field. It is the legitimacy of tax deductions that is important.

    One of the “subsidies” I’m referring to is a 1996 law giving oil companies the right to drill in the Gulf without having to pay for the right to drill. No private landowner would allow drilling on his property at no charge. If the government gives a free pass for something private enterprise charges for, I would consider it a subsidy. If it’s too expensive to drill in the Gulf without a government handout, leave the oil there until drilling can pay for itself – it will.

    As for replacing machinery or a copier as was mentioned, those are legitimate “deductions”, but I I would like to differentiate two kinds of “deductions”. One goes to the definition of profit. You should not pay income tax on money that is not income, so if you must buy a copier to run your business, the money spent is not profit and therefore, cannot be taxed. If we call that a deduction, fine. The other kind of deduction is the special case singled out for a particular group, such as special tax treatment for capital gains. These account for many of the 58,000 pages of our tax code. Most of them should go (in my semi-humble opinion).

    As for the home mortgage interest deduction, yes I call it a subsidy since apartment dwellers don’t receive any similar deduction, even taking the landlord’s deductions into account

    Please let me know what you think.

  20. Good points, Rincon, but don’t the oil companies have to pay royalty on any oil produced from those Gulf wells?

    Speaking of profit:

    http://www.investors.com/image/2ISSprof_120404_345.png.cms

    http://news.investors.com/article/606637/201204031900/oil-industry-profits-are-in-line-with-other-industries.htm?Ntt=oil-profit

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  21. Steve says:

    Rincon, correct! (though I would not want to ose that subsidy and the bankers would hate to as well.)

    What about the “Standard Deduction” since not everyone gets to take it, is it a subsidy?

  22. Rincon says:

    Thanks Thomas for bringing up a very good point. Although I suspect moat of us would prefer a simpler set of rules, the fairness of this whole thing rests on whether the oil companies make more money than other corporations.

    At first, I told myself that these companies aren’t making such great profits after all, but after thinking about it for awhile, I believe though, that there may be figures that fit this situation better. Instead of profits per dollar of revenues, I believe the most pertinent figure would be profits per dollar of net worth. The difference lies in product turnover.

    A business with a high product turnover such as a grocery store – or an oil company – can afford to make a very low profit on each dollar of merchandise sold because they will sell a huge volume in a year. If, for example, a supermarket turns its inventory over once a month, they earn their profit 12 times a year. A seller of pianos on the other hand, may be lucky to turn over his inventory twice a year, so he needs 6 times the profit on each dollar of revenue to match the supermarket on a profit per dollar of inventory basis.

    Would you agree that it would be worth finding out what company profits have been in terms of profits per unit of net worth?

  23. Rincon says:

    Seems like I always forget something. Thomas Mitchel also asked if oil companies have to pay royalties on Gulf oil. I googled “Gulf oil royalties” and the first or second hit is the Web site for the Economist. In the article, it says that no royalties are paid on Gulf oil by Chevron. I assume the same applies to other oil companies.

  24. Rincon says:

    Interesting question Steve. I’ve never thought about it before. Since everyone else gets itemized deductions, I guess my opinion would be that the standard deduction is not so much a subsidy as a tool to prevent those of us with average tax situations from having to pore over every figure and deduction. A reasonable labor saver, since it saves untold hours of misery for so many of us.

  25. That article also said: “in 1996, Congress decided it would be a good idea to encourage deepwater drilling by offering royalty-free leases in certain areas that wouldn’t be otherwise commercially interesting.”

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  26. Since the question is about taxes and how oil companies don’t pay enough, this might be the better comparison:

    “Oil and gas companies in 2010, the last year for which all data are available, paid 41.1% of their net income on income taxes. That compares with 26.5% for other industrial companies listed by Standard & Poor’s.”

    http://news.investors.com/article/606637/201204031900/oil-industry-profits-are-in-line-with-other-industries.htm?Ntt=oil-profit-taxes

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  27. Rincon says:

    Thomas, you”ve just put your finger on the problem. If we believe the oil companies need tax breaks and zero royalties to produce their product, then why are we taxing them at a higher rate than other industries? On the face of it, the solution suggests itself. Why not tax oil companies the same way we tax everyone else – and let the profits fall where they may?

    At the risk of getting off the subject, reducing all U.S. corporate taxes, which are the highest in the world, would make our companies more competitive abroad. For that matter, detaching health care costs from employers would also have a similar effect. If we did both, it would unshackle American industry and recharge our economy.

  28. Continuing off subject: Health insurance should never have been linked to employment in the first place. But during WWII wage freezes made fringe benefits one of the few ways to attract the best workers. Give all families an income tax deduction for health insurance. Then it would be portable.

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  29. Rincon says:

    I like it, especially the portability, but I do see one problem. If everyone gets a substantial tax deduction, then the only way to make up the tax shortfall is more debt – or raise other taxes, but those would have to be paid by the people getting the deduction in the first place. I have a lot of ideas about health care, but funding is a tough nut to crack. The first priority must be to cut costs so that health care takes up only 8-10% of our gdp instead of the 16% or so that it does now. If that’s done, a third to half of the problem would be solved already.

  30. Employers now get breaks. Transfer those to the individuals and that will cover a considerable amount, Rincon.

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  31. Rincon says:

    Of course! Why didn’t I think of that? I think it’s the only fair way. Unfortunately, there is another major impediment to encouraging portability. Insurance rates are much higher for individuals than for those in the group plans for employees of large companies. Given the inherent cost advantage, I wonder if true portability would still elude us.

    I suspect that it might evaporate anyway. Employers are already shying away from insurance commitments, so a tax change would only push the trend along. Besides, if insuring groups is actually cheaper, why can’t insurers produce group policies for all residents of a county for example?

    It’s a great idea. I wonder why the rules have been so unfair in the past.

  32. Inertia.

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  33. […] of the problem we now face is due to the inertia created in WWII by wage controls. As I noted in a recent reply on a blog posting, “Health insurance should never have been linked to employment in the first […]

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