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End corporate welfare for oil companies

Posted Mar. 13, 2012 / Posted by: Ben Schreiber

President Obama has identified over $4.7 billion that the oil and gas industry should pay under standard tax rules this year but that will remain in company coffers because the industry receives  preferential treatment  in the code. This special treatment gives oil and gas companies advantages that most other companies, individuals, and families don’t receive, and ultimately leaves more money in oil and gas companies’ pockets and deprives taxpayers of badly needed funds. In the next ten years, this special treatment will allow oil and gas companies to keep over $38.5 billion that they’d otherwise owe.

In his recent energy speech in New Hampshire, President Obama renewed his call for an end to taxpayer subsidies to the oil and gas industry.  Fearing that these hard won giveaways are at risk, Jack Gerard, of the American Petroleum Institute, responded by denying that the industry receives subsidies.

"It is factually wrong for the president to say that the industry receives subsidies," Gerard said. "A subsidy is a direct payment of money to a person or business by American taxpayers. The president has it backwards; our industry pays the government nearly $90 million a day -- the biggest contributor of government revenue than any other industry in the United States."

Jack Gerard is relying on a tortured definition of subsidies that doesn’t comport with plain English.  The American Heritage online dictionary defines a subsidy as “Monetary assistance granted by a government to a person or group in support of an enterprise regarded as being in the public interest.”

If Gerard wants to argue that oil and gas tax giveaways are not subsidies because they are not “regarded as being in the public interest” I might agree with him, but it strains credibility for him to say that special treatment allowing corporations to keep $38.5 billion that they would otherwise owe in taxes isn’t “monetary assistance.” If my friend owes me $50, and I tell her she can just  pay me $25, I’m  giving her a gift of $25. She’ll have an extra $25 in her pocket because of my decision to give her special treatment, and of course, I’ll have $25 less.  It is no different when a company’s tax bills are slashed through tax breaks; that company is receiving a subsidy. When oil and gas companies end next year with an extra combined $4.7 billion in their bank accounts, it will make little difference to them or to anyone else whether they received this money as checks or were absolved from paying taxes they should owe under standard U.S. tax rules; either way, the money will be theirs.

In some ways, the tax subsidies the oil and gas industry receives are more valuable than direct cash payments. Tax subsidies don’t have to be appropriated every year, as direct government spending does. Once they’re in the U.S. Code, tax subsidies become the default, and they stay on the books year after year until someone takes action to remove them. The difficulty of passing legislation therefore works to the advantage of companies receiving tax subsidies without specific sunset provisions.

That’s why organizations with economic and energy expertise recognize that special tax treatment for an industry is a type of government subsidy for that industry. A joint report on fossil fuel subsidies prepared for the 2009 G20 Summit by the World Bank, the Organization for Economic Cooperation and Development, and the International Energy Agency defines energy subsidies  as “any government action that lowers the cost of energy production, raises the revenues of energy producers, or lowers the price paid by energy consumers.” The report goes on to list the ways that governments support energy producers: “by intervening in markets in such a way as to affect costs or prices, by transferring funds to recipients directly, by assuming part of their risk, by selectively reducing the taxes they would otherwise have to pay, and by under-charging for the use of government-supplied goods or assets.” In a table entitled “Common Types of Energy Subsidies,” the report lists several items under “Tax Breaks,” including “rebates or exemption on royalties, producer levies, and income taxes,” and “tax credits and accelerated depreciation allowances.” These types of subsidies should be very familiar to oil and gas producers, as they have been helping them to hold on to billions of dollars every year.

The American Petroleum Institute can play with the definition of subsidy, but they cannot hide the fact that $38.5 billion that should be going to taxpayers is instead sitting in their coffers. If they’d like, though, we could say “corporate welfare” instead: “Financial aid, such as a subsidy or tax break, provided by a government to corporations or other businesses, especially when viewed as wasteful or unjust.”

 

Photo credit: Deepwater Horizon Response, Creative Commons Attribution

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