The Facts Behind Oil and Gas “Subsidies”

The cost of energy has skyrocketed, and many Americans are experiencing significant economic hardship as a result. What does the Obama administration propose to do about it? Eliminate “subsidies” to the oil and gas industry. How will that bring down energy costs? It won’t, obviously, but Obama apparently thinks that spite as a motivation for public policy will be popular with voters.
The Science and Environmental Policy Project explains the facts behind the “subsidies” with which President Obama has suddenly become obsessed:

Number of the Week: $4 Billion. This the amount that Mr. Obama claims to be the tax subsidies extended to the oil and gas industry. It is not clear how the amount is calculated. By contrast, in an article referenced in last week’s The Week That Was, the Department of Energy announced it has given $21 Billion in (not tax) subsidies to the alternative energy industry in the form of loan guarantees. … Since the stimulus bill of 2009, direct subsidies to alternative energy producers have increased dramatically by orders of magnitude, but for the US these subsidies are not centrally compiled as far as SEPP has been able to determine. …
The tax subsidies, “loopholes,” to oil and gas companies are largely in three categories: 1) oil depletion allowance, 2) expensing indirect drilling costs, and 3) a tax credit for taxes paid to foreign nations during foreign operations (foreign tax credit). The first category is a favorite among independent producers (and similar depletion allowances are available for all mineral extraction, timber, etc.). The independent producers can pass the depletion on to individual investors. Since the mid-1970s, the allowance has not been permitted for integrated oil companies. The smaller producers will bitterly fight for this “loophole” and the larger producers will be blamed.
The second category permits writing off indirect drilling costs in the year incurred rather than capitalizing them and writing them off over several years. Closing this “loophole” would only change timing of taking the expense, not total amounts of the so-called tax subsidy. The third category is available for all international companies. Closing this “loophole” would discriminate against oil and gas companies in favor of other international companies such as General Electric.

As I’ve said before, it is ludicrous for the administration to complain about “subsidies” to the oil companies when ExxonMobil pays more in taxes than it earns in profits, and when the “green” energies favored by the Obama administration actually are subsidized, and in fact would not exist without government favoritism.

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